Forget Bitcoin on-chain, the U.S. Inflation Data Will Determine the Next Move in BTC

On Sunday, January 9, the Bitcoin price bounced back, breaking its six-days of sideways move from last week. As of press time, Bitcoin is trading at $42,198 levels with a market cap of $798 billion.

Some of the Bitcoin on-chain data and the RSI levels have been hinting at a trend reversal. However, a key thing to watch will be the U.S. Inflation Data coming ahead this week on Wednesday.

The CPI data will ultimately decide whether if Fed will turn more aggressive into quantitative tightening (QT) and this will ultimately decide the liquidity in the market thereby driving further the crypto prices.

Interesting Analysis By Alex Krüger

On Sunday, January 9, popular market analyst Alex Kruger has put forward an interesting thread on Twitter about the Fed decisions and how the CPI inflation data will affect Bitcoin and the overall crypto space.

1. The Fed has turned increasing hawkish recently announcing three rate hikes for 2022. This was after Fed Chairman Jerome Powell realized that inflation is no more “transitory” but a serious concern. Thus, to keep inflation in check, the Fed has no option but to increase the interest rates.
2. As the Fed turns towards adopting the quantitative tightening (QT) measures, it will move towards pulling liquidity back from the system aka the market.
3. Krüger explains that the Fed’s hawkish stand has been one of the key reasons “why crypto assets dropped 15%-30% in two days last week”.
4. But how does it really matter to crypto assets? Krüger writes: “Simple. Crypto assets are at the furthest end of the risk curve. Just as they benefited from extraordinarily lax monetary policy, they suffer from unexpectedly tight monetary policy, as money shifts away into safer asset classes.”
5. Krüger also adds that “bitcoin is now a macro asset that trades as a proxy for liquidity conditions. As liquidity diminishes, macro players now in the fray sell bitcoin, an all of crypto follows “.
6. The market analyst expects the Bitcoin price to remain choppy in the $41K-$44K range until the CPI data comes ahead this Wednesday.
7. If CPI turns out to be lower than expected Bitcoin price can pop. However, if the inflation numbers are higher than Street estimates Bitcoin is heading for the lower 30s.

It seems that one must hold the horses so far before jumping into any anticipation of trend reversal and rather wait for clear signs ahead.