How Bitcoin & Crypto Prices Will React To FOMC Minutes, CPI Inflation – Is Market Bottom Near?

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Bitcoin, and crypto prices in general, have been buoyant this week, but that could change as of today as producer price index (PPI) inflation data and FOMC minutes are released. .

The first thing to shake the market out of its lethargy is the US PPI data, a measure of inflation at the factory gate.

Any signs of cooling will be treated as confirmation of the need for the Federal Reserve to moderate interest rate hikes. Such an outcome would light a fire in crypto stocks and prices.

Conversely, if producer price inflation continues to rise, expect risky assets to resume selling off.

PPI inflation is lower than August reading

Well, the data is out and the core consumer price index increased monthly at double the expected level, by 0.4% vs. the 0.2% forecast.

Meanwhile, the year-over-year headline PPI was 8.5%, higher than the 8.4% forecast, though down from 8.7% in the previous month (August), and that last point appears, initially, to be the key conclusion for the market.

As such, the reaction so far is quite positive: Bitcoin remains largely unchanged, but could go higher if stocks are able to pick up some positive momentum.

BTCUSD 15 min candles, Oct 12, Source: Messari

The S&P 500 was up 0.2% to 3,595, the Dow up 61 points and the Nasdaq up 0.38% to 10,468.

Elsewhere, the sell-off in 30-year UK government bonds has picked up, with yields accelerating 23 basis points higher to 5.00% (more on the UK financial crisis below)

But the PPI data is the act of preparation for the main show, which is the release of US consumer price index (CPI) inflation data on Thursday.

FOMC Minutes Could Shake Up The Crypto Market

However, even before those much-anticipated numbers are released, market participants will have plenty to ponder when the Federal Open Market Committee (FOMC) releases the minutes of its meeting on September 21 at 18:00 UTC. .

The minutes are likely to show that there is a strong consensus around the need for a 75 basis point rate hike in November.

Fed watchers will be keeping an eye out for any language changes that could be interpreted as a tightening of the hawkish line or a willingness to move away from that trajectory, should incoming data indicate that inflation may be starting to weaken.

However, one area of ​​potential disagreement, or at least misalignment, will be over the terminal rate, in other words, the rate that will mark the peak of the bullish cycle.

According to Refinitiv data, the consensus forecast for the terminal fee is now 4.45%, well below previous projections made in August of 3.7%. The terminal fee date is assumed to be March 22, 2023.

Any hint that the terminal rate is coming in later than expected and at a higher level will fuel selling in both the stock and crypto markets.

Some economists believe the terminal rate will be closer to 5%. Either way, the FOMC minutes could shed some light on the thinking of its members.

Bitcoin Holds Its Value Better Than UK Government Inflation-Linked Bonds Right Now

Perhaps the most surprising observation to be made about market conditions in crypto in recent weeks has been the relative stability, especially when evaluated alongside other asset classes.

Take UK government bonds, for example, where the trauma in those markets continues, perhaps gathering steam on Friday when the Bank of England says, though the signs are confusing the market, that it will end its bond buying on the long end. of the curve. (30-year bond maturities).

Take a look at this chart from a recent Financial Times story:

The chart shows that the price of bitcoin is down 67% since November 2021, but the UK’s inflation-linked expiry in 2073 is down almost 80%.

That’s an amazing juxtaposition. It underscores how a maturing bitcoin market competes well in volatility against previously strong asset class instruments such as UK inflation-linked government bonds, or “bonds” as they are known.

Bitcoin volatility may rise soon, but overall volatility is trending down

Our second point to consider is the weakening of bitcoin price volatility.

Of course, this is important because volatility is another way of expressing risk, and it is becoming less and less risky to hold bitcoin.

We can see this in the falling spikes of the Bitcoin volatility index illustrated by the orange line in the chart below (the two falling spikes are explained by missing data):

How will the FOMC minutes and inflation data influence the continued formation of the bitcoin bottom?

And what we all want to know is how the news from economic statisticians and the Fed could feed calculations on whether the price of bitcoin is near its lowest point.

In that, the bitcoin accumulation trend score could help clear things up.

It’s a relatively new Glassnode metric (March 2022) and here’s a helpful definition:

The Accumulation Trend Score is an indicator that reflects the relative size of entities actively accumulating on-chain coins in terms of their BTC holdings. The accumulation trend score scale represents both the size of the entities balance (their participation score) and the number of new coins they have acquired/sold during the last month (their balance change score). An accumulation tendency score closer to 1 indicates that, in aggregate, the largest entities (or a large part of the network) are accumulating, and a value closer to 0 indicates that they are being distributed or not accumulating. This provides information on the size of the balance of market participants and their accumulation behavior during the last month.

If you want to dig a little deeper into the metric, check out this video:

What is notable about the chart is the possible repeat today in the bottom formation pattern seen in late 2018 and Q1 2019.

Here is the annotated chart from Glassnode:

Glassnode highlights, among other things, how “the accumulation trend score for whales holding 1k-10k BTC highlights aggressive accumulation since late September”:

In our current market structure, and looking at a roughly 10x increase in BTC prices, we can see very similar behavior across large entities, however, driven more by the 100-1k BTC cohort during the August rally. .

In addition to the relative neutrality between the small and medium address cohorts, the accumulation trend score for whales holding 1k-10k BTC highlights the aggressive accumulation since the end of September. Whales holding >10K BTC are biased towards a weak distribution in recent months.

A closer look at the two periods is shown below:

If the apparent fractal is the correct interpretation, whatever happens in terms of short-term volatility, Bitcoin is in a good place.

Cost averaging in the market below the $20k level could be a relatively good entry point, especially if you are buying the BTC/GBP pair.

Portfolio Diversification: Go Green

And if you fancy fishing among some of the emerging altcoins, a good diversifier if you already own bitcoin could be a green crypto like IMPT, which is currently on presale.

It is worth mentioning because it is the only currency that targets buyers by allowing them to offset their carbon footprint.

The presale allotment is selling at an impressive rate, with $3 million worth of tokens in a week, but please do your own research.

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