On Sunday, January 9, Bitcoin price rebounded, breaking six days of sideways movement from last week. As of press time, Bitcoin is trading at $42,198 with a market cap of $798 billion.
Some Bitcoin on-chain data and RSI levels have hinted at a trend reversal. However, one important thing to keep an eye on is the US Inflation Data due out this Wednesday.
The CPI data will ultimately decide whether the Fed moves to more quantitative (QT) tightening and this will ultimately determine the liquidity in the market, thus boosting crypto prices further.
Interesting analysis by Alex Krüger
On Sunday, January 9, prominent market analyst Alex Kruger made an interesting Twitter thread about how Fed decisions and CPI inflation data will affect Bitcoin and not. electronic money in general.
- The Fed recently went hawkish when it announced three rate hikes for 2022. This was after Fed Chairman Jerome Powell realized that inflation was no longer a “transient” but a serious concern. Therefore, to keep inflation under control, the Fed has no choice but to raise interest rates.
- As the Fed moves towards adopting quantitative tightening (QT), it moves towards pulling liquidity back into the system aka the market.
- Krüger explained that the Fed’s hawkish stance is one of the main reasons “why crypto assets fell 15%-30% in two days last week.”
- But how important is it really for crypto assets? Kruger write: “Homely. Crypto assets are located at the furthest end of the risk curve. Just as they benefited from exceptionally loose monetary policy, they suffered from unexpectedly tight monetary policy, as money moved into safer asset classes.”
- Krüger also added that “bitcoin is now a macro asset that is traded as a proxy for liquidity conditions. As liquidity drops, macro players are now selling bitcoin, all crypto follows.”
- The market analyst expects Bitcoin price to continue to hover in the $41K-$44K range until the CPI data is released this Wednesday.
- If CPI is lower than expected, Bitcoin price could rise. However, if the inflation figure is higher than Street estimates then Bitcoin is headed for the lower 30s.
It seems like one has to hold the horses so far before jumping into any predictions of a trend reversal and instead wait for clear signs ahead.