(Kitco News) – The hotter-than-expected Consumer Price Index (CPI) reading weighed heavily on the crypto market in early trading on Wednesday as Bitcoin (BTC) briefly dipped below $68,000, while altcoins have largely trended lower.
The CPI for March rose 0.4% versus expectations for 0.3%, while the year-over-year CPI was up 3.5% versus the 3.4% expected. This was the latest sign that inflation may not be under control even while other measures have shown the U.S. economy is doing better than expected, casting doubt on hopes for a Fed rate cut at some point this summer.
The CME FedWatch Tool now shows that expectations for a rate cut in June have fallen to 19%, while the likelihood of a cut in July now stands at 44%. Yesterday, those figures stood at 57% and 74%, respectively.
Data provided by TradingView shows that Bitcoin traded around support at $69,000 early on Wednesday, but dipped to a low of $67,475 after the CPI was released. Bulls have since bid it back above $68,500 and continue to push to make up for lost ground as they look to find firm footing ahead of the halving around April 19.
BTC/USD Chart by TradingView
“All eyes are on Bitcoin as the halving approaches, but a major factor could make this cycle different from others,” said Alan Scott, a contributor to RAILGUN. “There’s more built-up selling pressure due to Bitcoin reaching a new all-time high before the halving, a first in crypto history.”
“Short-term holders buying Bitcoin at a higher price are going to sell, sell, sell, and therefore shift the distribution of their assets and profit-taking,” he said. “It’s also worth noting that tax season, that is April 15th to May 1st, removes liquidity from the system and this tends to have a negative effect on short-term price action.”
“This could make Bitcoin volatile for quite some time after the halving,” Scott warned. “Macroeconomic events, such as the Federal Reserve’s quantitative tightening, could cause Bitcoin to decline as more liquidity is removed from the market. While crypto has indeed had a resurgence this year, it’s important to note that there’s a bag of tricks that may lead Bitcoin to stumble.”
One possible buffer to a price drop following the halving is the supply of Bitcoin on exchanges, which has been steadily declining in recent months.
According to Julio Moreno, Head of Research at cryptocurrency analytics firm CryptoQuant, while the new issuance will be cut in half following the halving, demand for Bitcoin is expected to continue to increase.
#Bitcoin demand has become more important than supply (issuance).
Bitcoin demand is growing at an unprecedented pace.
Here I estimate demand with the growth in the total balance of accumulation addresses, so it's just a portion of total demand.#BitcoinHalving2024 pic.twitter.com/dluYhx1Ddy— Julio Moreno (@jjcmoreno) April 9, 2024
Moreno provided another way to highlight the value proposition of Bitcoin following the hotter-than-expected CPI, tweeting, “US dollar inflation accelerates. Bitcoin inflation to halve next week.”
Data provided by CryptoQuant shows that the demand growth for Bitcoin is now “around the highest ever (11% MoM),” largely driven by large holders and whales.
$BTC demand growth seems to be a major driver of higher prices post-halving.
In past cycles, #Bitcoin demand growth from large holders/whales (violet area) has spiked, fueling the price rally.
Currently, demand growth is around the highest ever (11% MoM). pic.twitter.com/PefL54jPlC— CryptoQuant.com (@cryptoquant_com) April 9, 2024
And demand is expected to continue to climb as banks like Morgan Stanley and UBS race to offer their clients access to the spot BTC exchange-traded funds (ETFs), while there are also reports that some of China's biggest asset managers are using Hong Kong subsidiaries to enter the Bitcoin ETF market.
Before the country banned all things crypto in 2021, China had one of the most active Bitcoin markets in the world. With Chinese investors scrambling to find ways to maintain their wealth as the real estate market struggles, Bitcoin ETFs could soon provide an outlet alongside the surging retail interest in gold.
Based on these factors, market analyst Rekt Capital suggested that any price dip in Bitcoin between now and the halving is likely to bounce back quickly.
#BTC
Do you realise whatever downside Bitcoin experiences before the Halving, if any, will be the very last bargain-buying opportunity in the 2024 Pre-Halving period ever?$BTC #Crypto #Bitcoin pic.twitter.com/dqZ6vL47bo— Rekt Capital (@rektcapital) April 8, 2024
At the time of writing, Bitcoin trades at $68,450, a decrease of 1% on the 24-hour chart.
