The Bitcoin price surged up on Sunday, January 9, ending a six-day sideways swing from the previous week. Bitcoin is currently trading at $42,198, with a market capitalization of $798 billion as of press time.
The RSI levels and some Bitcoin on-chain data have been pointing to a trend reversal. The U.S. Inflation Data, which will be released this week on Wednesday, will be an important factor to follow.
The CPI report will eventually determine if the Fed will become more aggressive in its quantitative tightening (QT), which will determine market liquidity and drive crypto prices higher.
Bitcoin Movement Analysis that is intriguing Alex Krüger’s contribution
Popular market analyst Alex Kruger posted an interesting thread on Twitter on Sunday, January 9 concerning the Fed’s policies and how the CPI inflation statistics will effect Bitcoin and the wider crypto ecosystem.
1. The Federal Reserve has recently become more hawkish, announcing three rate hikes in 2022. This came after Federal Reserve Chairman Jerome Powell acknowledged that inflation is no longer “transitory,” but rather a significant threat. As a result, the Fed has no choice but to raise interest rates in order to keep inflation under control.
2. As the Fed moves closer to implementing quantitative tightening (QT) measures, it will begin to withdraw liquidity from the system, i.e. the market.
3. According to Krüger, the Fed’s hawkish stance is one of the main reasons “why crypto assets plunged 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. Then, 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 “.
Until the CPI data is out on Wednesday, the market expert anticipates the Bitcoin price to remain turbulent in the $41K-$44K region.
If the CPI is lower than projected, the Bitcoin price may rise. However, if inflation figures are greater than expected, Bitcoin will fall into the lower 30s.
It appears that one must wait for clear indicators of a trend reversal before jumping into any anticipation of a trend reversal.