How will Bitcoin and Cryptocurrency Prices React to FOMC Minutes, CPI Inflation - Is Market Close to Bottom?

How will Bitcoin and Cryptocurrency Prices React to FOMC Minutes, CPI Inflation – Is Market Close to Bottom?

Source: Adobe Stock

Bitcoin and cryptocurrency prices in general have been in the water this week, but that could change as of today as the Producer Price Index (PPI) inflation data and FOMC minutes are released.

The first thing that caused the market to slumber was data from the US Producer Price Index, a measure of inflation at the factory gate.

Any sign of appeasement will be treated as confirmation of the Fed’s need to dampen interest rate hikes. Such an outcome would set fire to stock and cryptocurrency prices.

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

PPI inflation comes lower than the August reading

Well, the data is in, and the core PPI rose on a monthly basis by twice the expected level, at 0.4% vs. 0.2% expectations.

Meanwhile, YoY headline PPI was 8.5%, higher than expected by 8.4%, although down from 8.7% in the previous month (August) – and that last point, at first, appears to be the main takeaway. Market.

As such, the reaction is fairly positive so far – Bitcoin remains largely unchanged, but could move higher if stocks can pick up some positive momentum.

BTCUSD 15-Minute Candles, Oct 12, Source: Messari

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

Elsewhere, UK 30-year government bond sales surged, with yields accelerating up 23 basis points to 5.00% (more on the UK financial crisis below)

But the PPI data is an act of warming up to the main supply, the US Consumer Price Index (CPI) which released inflation data on Thursday.

FOMC Minutes Could Excite the Cryptocurrency Market

However, even before these highly anticipated numbers are released, market participants will be provided with plenty to reflect on when the Federal Open Market Committee (FOMC) releases the minutes of its September 21 meeting at 18:00 UTC.

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

Fed watchers will look for any changes in language that could be interpreted as either hawkish hardening or a willingness to move away from such a path, if incoming data indicates inflation may start to weaken.

A potential area of ​​contention, or at least a lack of alignment, will be around the final price – in other words the price that will mark the peak of the rally cycle.

According to Refinitiv data, the consensus forecast for the final interest rate now stands at 4.45%, far from the previous forecast made in August of a target of 3.7%. The final price date is assumed to be March 22, 2023.

Any hints about the final price coming later than expected and at a higher level will prompt selling in both the stock and cryptocurrency markets.

Some economists believe that the final interest rate will be closer to 5%. Either way, the FOMC meeting minutes may shed some light on the thinking of its members.

Bitcoin holds its value better than inflation-linked UK government bonds right now

Perhaps the most striking observation that has been made on market conditions in cryptocurrencies over the past few weeks has been the relative stability, especially when valued alongside other asset classes.

Take UK government bonds, for example, as the shock to those markets continues, and may come forward on Friday when the Bank of England – despite signs confusing the market – says it will end its bond buying at the long end of the curve (30-year bonds). .

Take a look at this graph from a talk financial times a story:

The chart shows that the bitcoin price has fallen by 67% since November 2021, but the UK inflation-related maturity date of 2073 has fallen by nearly 80%.

This is an amazing juxtaposition. It shows how the mature Bitcoin market actually competes well in volatility against previously strong asset class instruments such as UK inflation-linked government bonds, or “links” as they are known.

Bitcoin volatility may rise soon, but overall volatility is in a downtrend

The second point to consider is the low volatility of the bitcoin price.

This is of course important because volatility is another way of expressing risk – and holding bitcoin becomes less risky.

We can see this in the lower highs of the Bitcoin Volatility Index marked by the orange line on the chart below (the lower highs are explained by missing data):

How will the FOMC meeting minutes and inflation data play in forming the continued bottom of Bitcoin?

And what we all want to know is how the news from economic statisticians and the Federal Reserve could fuel calculations about whether the bitcoin price is near its bottom?

In this regard, the result of the bitcoin accumulation trend may help clarify matters.

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

The degree of accumulation trend is an indicator that reflects the relative size of the entities actively accumulating coins on the chain in terms of their Bitcoin holdings. The accumulation trend score scale represents both the size of the entities’ balance (their share score), and the amount of new coins they acquired/sold over the past month (their balance change score). An accumulation trend score closer to 1 indicates that larger entities (or a large portion of the network) accumulate in aggregate, and a value closer to 0 indicates that they are distributing or not accumulating. This provides insight into the equilibrium magnitude of market participants, and their cumulative behavior over the past month.

If you want to go deeper into the scale, watch this video:

What is striking in the chart is the likely repetition today of the bottom formation seen at the end of 2018 and the first quarter of 2019.

Here is the annotated Glassnode diagram:

Glassnode HighlightsAmong others, how the “accumulation trend points for whales carrying 1k-10k BTC highlight strong accumulation since late September”:

In our current market structure, and with an approximate observation of 10x in bitcoin prices, we can see very similar behavior occurring in large entities, but more driven by the 100-1k bitcoin combination during the August rally.

In addition to the relative neutrality across the small to medium address blocks, the accumulation trend points for whales holding 1k-10k BTC highlight the strong accumulation since late September. Whales with more than 10,000 bitcoins have tended to have a poor distribution in recent months.

A closer look at the two periods is presented below:

If the apparent fractal is the correct explanation, whatever happens in terms of near-term volatility, bitcoin is in a good place.

The average cost in the market below $20K can be a relatively good entry point, especially if you are buying the BTC/GBP pair.

Portfolio Diversification – Be Green

And as you fancy hunting among some of the upcoming altcoins, a good diversification might be if you already own bitcoin, an eco-friendly cryptocurrency like IMPT, which is currently on sale.

It is worth noting that it is the only currency that targets shoppers by enabling them to offset their carbon footprint.

The pre-sale custom is selling with an impressive clip, with $3 million worth of tokens slashed in a week, but do your research.

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