(Kitco News) – Thursday was a perplexing day for traders as the highly anticipated Consumer Price Index (CPI) report came in better than expected, showing that the pace of inflation continues to cool, which initially buoyed asset prices, only to see them fall into the red as the day progressed.
“Bitcoin (BTC) experienced a notable uptick following the release of favorable CPI data, with inflation rates dropping to their lowest in over three years this June,” said analysts at Secure Digital Markets. “The CPI YoY registered at 3%, surpassing the expected 3.1%, while core CPI YoY fell to 3.3%, below the forecasted 3.4%.”
“This positive inflation report strengthens the argument for a potential rate cut by the Federal Reserve later this year,” they noted. “According to the CME FedWatch tool, the probability of a September rate cut has surged to [92%], with another possible cut in December, contingent on continued favorable inflation data.”
Despite the rise in rate cut expectations, stock and crypto prices rolled over once the excitement about the CPI report quieted down, with investors rotating out of the tech sector, which has seen a blistering (and some say unsustainable) rally in recent months.
Heavyweight big tech names like Nvidia (NVDA), Microsoft (MSFT), and Meta (META) all saw their prices slide lower, while Tesla (TSLA) snapped an 11-day winning streak with a decline of more than 7.5%.
Traders found few safe havens amid the volatile day in trading as the DXY and U.S. 10-year Treasury yield fell alongside stocks, while cryptos largely traded sideways – leaving gold as the standout performer with an increase of 1.78% to trade at $2,420.
At the closing bell, the S&P and Nasdaq were down 0.88% and 1.95%, respectively, while the Dow gained 0.08%.
Data provided by TradingView shows that Bitcoin hit a high near $59,540 following the CPI release, then experienced a sharp sell-off that saw it drop to a low of $57,200 in the afternoon.
BTC/USD Chart by TradingView
At the time of writing, Bitcoin trades at $57,485, an increase of 0.50% on the 24-hour chart.
Positive movements on the horizon
While Bitcoin has struggled to gain momentum of late due to multiple factors – including the threat of the Mt. Gox Bitcoins being dumped on the market and heavy selling by the German government – most analysts, including those at JPMorgan, see a turnaround on the horizon.
According to a research report released by JPMorgan on Wednesday, crypto liquidations should begin to subside in July, and the market is expected to rebound from August onward.
Despite the predicted turnaround in sentiment, the bank also reduced its year-to-date crypto net flow estimate to $8 billion from $12 billion, saying they were skeptical that the prior estimate of $12 billion would continue for the rest of the year given how high Bitcoin was relative to its production cost or relative to the price of gold.
“The reduction in the estimated net flow is largely driven by the decline in Bitcoin reserves across exchanges over the past month,” analysts led by Nikolaos Panigirtzoglou said. They highlighted Bitcoin liquidations by creditors of Gemini and Mt. Gox, along with the selling by the German government, as the likely reasons for the decline in reserves.
“In my opinion, the drawdown in Bitcoin’s price over the last week has been driven by the German government’s sale of Bitcoin from previous seizures of illicit operations,” said Brian Dixon, CEO of Off the Chain Capital, in a note to Kitco Crypto. “Their government has transferred thousands of Bitcoin to exchanges and market makers for sales.”
“I believe the German government is making a mistake selling their Bitcoin, as it should instead hold the Bitcoin in the treasury reserve, granting Germany a strategic geopolitical advantage as Bitcoin continues to appreciate,” he added.
Historically, Bitcoin has enjoyed a positive correlation with the S&P; however, that correlation began to diminish in late May as stocks went on a tear while Bitcoin struggled with sideways and down price action.
According to market analyst Ali Martinez, that could soon change, and Bitcoin has the potential to play a fast game of catch-up via a rapid price surge.
It's been over a month since the correlation between #Bitcoin and the S&P 500 broke. While $BTC retraced to $54,000, the S&P 500 hit new all-time highs. Only time will tell if #BTC will catch up! pic.twitter.com/1qyNUuityT
— Ali (@ali_charts) July 11, 2024
“The Bitcoin accumulation trend score indicates a change in investor sentiment, with many now choosing to accumulate $BTC following an extended distribution phase since April,” he noted in a follow-up post.
According to Arsen, author of the Bitcoin Therapy newsletter, the recent sideways price action is typical of Bitcoin bull market cycles. He sees King Crypto topping out around $300,000 before this cycle is said and done.
“While you're being scared, smart money is doubling down,” he said. “That’s because this dip is nothing new. As you can see, Bitcoin goes to a new all-time-high every 4 years: 2012: Bitcoin goes from $12 to $1000 = ~9,000% increase; 2016: Bitcoin goes from $650 to $19K = ~3,000% increase; 2020: Bitcoin goes from $8K to $69K = ~1,200% increase; 2024: ?”
“Notice how, in every consecutive cycle, the #Bitcoin returns get smaller by about ~60%,” he added. “That would imply a 450% price increase this cycle, putting Bitcoin at ~$330,000 per coin.”
Mixed bag for the altcoin market
Altcoins traded mixed on Thursday with the top 200 tokens evenly split between winners and losers.
Daily cryptocurrency market performance. Source: Coin360
MANTRA (OM) was the top performer with an increase of 12.5%, followed by a gain of 9.4% for Galxe (GAL) and an increase of 7.4% for Stacks (STX). BinaryX (BNX) suffered the biggest loss, falling 27.5%, while Bonk (BONK) declined by 8.2%, and Render (RNDR) fell by 6.9%.
The overall cryptocurrency market cap now stands at $2.13 trillion, and Bitcoin’s dominance rate is 53.3%.
