(Kitco News)—Cryptocurrencies were in consolidation mode on Thursday after the hype behind Wednesday’s 8% CPI-driven spike in Bitcoin (BTC) faded and the reality of inflation and interest rates returned.
Wednesday’s rally was the strongest performance from King Crypto since March 20, with Bitcoin successfully breaching its 50-day moving average for the first time since April 13th. “While a slight retreat to around $65,000 may be on the horizon, the overarching breakout trend is expected to persist, potentially driving Bitcoin towards its annual peak,” said analysts at Secure Digital Markets.
They noted that the “weak U.S. economic data has bolstered the likelihood of a Federal Reserve rate cut come September,” and suggested the shift “may also prompt rate reductions by the Bank of England and the European Central Bank as early as June.”
“As central banks globally lean towards monetary easing, this pivot bodes well for risk assets, including cryptocurrencies,” the analysts said. “The trend among global central banks is swiftly moving from rate hikes to cuts.”
Investors have taken this trend as a sign to reenter the stock market, with the S&P surging past 5,300 for the first time on Wednesday, while Thursday saw the Dow Jones Industrial Average touch 40,000, also a first in the market's history.
But hawkish comments from three Fed officials – Cleveland Fed President Loretta Mester, New York Fed President John Williams and Richmond Fed President Thomas Barkin – who warned of higher for longer interest rates while speaking separately on Thursday, halted the stock rally and led to a negative close for the major indices.
At the closing bell, the S&P and Nasdaq were in the red, down 0.15% and 0.25%, respectively, while the Dow finished flat.
Data provided by TradingView shows that Bitcoin largely traded around support at $61,000 in early trading on Thursday before sliding to support at $65,000 in the afternoon.
BTC/USD Chart by TradingView
At the time of writing, BTC trades at $65,215, a decrease of 1.55% on the 24-hour chart.
Strong economy?
While Wednesday’s strong rally on “soft” inflation excited crypto fans, market analyst Bloodgood warned traders they should resist jumping to any conclusions as CPI-driven rallies “never last.”
“Bitcoin has been moving in a range between weekly support at $60k and daily resistance at $64k since before the start of May,” he said. “Looking at the daily chart, we can see that a higher low was formed, and at the time of writing, Bitcoin is trading slightly below the daily resistance.”
“This daily level was tested multiple times, so from the technical analysis standpoint, it makes me believe that it will break, sooner rather than later,” Bloodgood said. “From a more macro standpoint, we could say that this rally is due to the CPI news, which we know never lasts, so don’t jump to any conclusions just yet. Wait for levels to be broken and confirmed, then trade.”
Waiting for a clearer picture on inflation is key in the current conditions, as positive headlines can be misleading. According to The Kobeissi Letter, “Inflation has not fallen in a single month since January 2021.”
“This means that overall prices are up over 19.5% in less than 4 years. That is an average of 5.5% per year effectively wiping out ONE FIFTH of the US Dollar's purchasing power,” the analyst wrote. “We have not had a year-over-year inflation print below 3% in 37 consecutive months.”
“Inflation is now building on previous years of inflation; we effectively have compounding inflation,” they added. “How is this a ‘strong’ economy?”
“Since the pandemic, the purchasing power of the US Dollar has lost ONE FOURTH of its value. It all escalated after $4 trillion in stimulus was handed out,” The Kobeissi Letter said. “Inflation is the biggest involuntary tax of all time.”
As for why inflation remains elevated, The Kobeissi Letter pointed to the Fed and noted that “U.S. financial conditions are now the easiest since 2021.”
“In other words, financial conditions now are looser than before the Fed started HIKING rates,” they said. “Since December, when the Fed seemingly declared victory against inflation, financial conditions have eased significantly. Effectively, markets have behaved like the Fed has already cut interest rates.”
“This is exactly why inflation is back on the rise in today's market,” they concluded. “The December Fed meeting still does not make sense.”
Mixed day for altcoins
It was a mixed bag of performances in the altcoin market, with a slight majority of tokens in the top 200 recording losses on Thursday.
Daily cryptocurrency market performance. Source: Coin360
Fantom (FTM) gained 12% to lead the field, while Core (CORE) climbed 11.9%, and Jito (JTO) increased by 11.7%. The newly listed community token Notcoin (NOT) fell 47% as traders looked to profit off their airdropped tokens, followed by an 8.7% pullback for Nervos Network (CKB), and a loss of 8.4% for Stacks (STX).
The overall cryptocurrency market cap now stands at $2.35 trillion, and Bitcoin’s dominance rate is 54.6%.
