Bitcoin Could See More Pain as Inflation Rises

Bitcoin trends down is moving towards the bottom of a range created in July when the cryptocurrency hit a multi-year low at $17,600. Now, BTC appears poised to take further losses in the near term as macro forces remain in control of global markets.

At the time of writing, Bitcoin (BTC) is trading at $19,000 with a 1% and 3% loss over the last 24 hours and 7 days, respectively. Other cryptocurrencies are following the general sentiment in the market with many returning their short-term gains apart from XRP.

BTC price is moving sideways on the 1 hour chart. Font: BTCUSDT Trade View

Bitcoin Caught Between Global Macro Forces

According to trading desk QCP Capital, after the Ethereum “Merge”, the migration from proof-of-work (PoS) to a proof-of-stake (PoS) consensus was successfully completed, and the sector lost its final bullish narrative. However, macro factors are the only ones that exert influence.

Thus, Bitcoin, Ethereum, and other cryptocurrencies are increasing in correlation with traditional assets and moving more and more in tandem with global economic forces. In that sense, the next printing of the Consumer Price Index (CPI) for September could put additional selling pressure on the price of BTC.

The US Federal Reserve (Fed) is trying to combat high levels of inflation, as measured by the CPI, by raising interest rates and shrinking its balance sheets. This is causing a negative effect on the value of almost every asset class except the US dollar. QCP Capital wrote:

The USD continues to be bid as the dollar’s real return outperforms any other asset class to date. Commodities and Precious Metals showing gloomy figures (…). The meltdown in global macro sentiment has pushed cross-asset correlations back to extremes. BTC correlation with stocks and gold (positive correlation) at all-time highs (…).

However, their attempts have been futile as inflation is proving resilient and could continue to trend higher. The next CPI report for September, to be published next Thursday, will provide more clues about the current macroeconomic situation. QCP Capital said:

In that sense, all eyes are on the Federal Reserve and, by extension, on this Thursday’s CPI, where uncertainty remains high. Sell-side economists forecast a roughly 0.4% m/m and 6.5% y/y rise in core CPI, fueled by strong haven inflation.

If the Fed insists on raising interest rates, Bitcoin is likely to trend down in the short term. QCP Capital views “robust” demand in US labor sectors as a potential negative as it contributes to inflation metrics and encourages the financial institution to maintain tight financial conditions.

Bitcoin Whales Push BTC Down, Careful Next?

The Fed is already being pressured by US allies to stop its interest rate hike program, but to no avail. However, this pressure could contribute to a change in the position of the financial institution in the long term.

Meanwhile, as the economic situation remains at extreme levels, Bitcoin’s upside potential will remain limited. Over short timeframes, Material Indicators data shows an increase in sell orders from investors (purple in the chart below) with buy orders between $100,000 and $1 million.

As long as this trend continues, any attempt to recapture previous levels will result in a rejection, as has been the case in recent weeks.

Leave a Comment