CPI to Trigger Dollar Massacre – 5 Things to Know in Bitcoin This Week
Bitcoin (BTC) starts the week on a firm footing as bulls send the BTC price to a new ten-month high weekly close.
After a relatively calm week, last-minute volatility has traders excited about the prospect of a repeat assault on $30,000 resistance – but much stands in the way.
In what is set to be a significant week of macroeconomic data releases, the consumer price index (CPI) for March is due on April 12, along with new insights into Federal Reserve policy.
Add to that the Ethereum Shanghai upgrade and a recipe for volatility is there. How will Bitcoin react?
Volatility correlations between the largest cryptocurrency and traditional risk assets are inverting, data shows, while sentiment data also suggests there is little appetite for sudden selling among the hodler base.
Cointelegraph takes a look at the status quo in the run-up to what promises to be a week that keeps market players on their toes.
CPI headlines key macro data week
A familiar event leads this week’s macro calendar, with data from the US consumer price index (CPI) for March.
The release, this time on April 12, traditionally accompanies increased volatility in risky assets, making this date a key area to watch for “fakeouts” in crypto markets.
The Federal Reserve will also produce the minutes from its last meeting of the Federal Open Market Committee (FOMC), where it chose to continue raising interest rates.
The environment is thus somewhat complicated when it comes to CPI influence on the asset’s performance. While traders want to see inflation ease faster than expected, the Fed itself remains hawkish, confirming last month that further rate hikes may be appropriate.
However, differences between the Fed and the markets are just as evident – sentiment has begun to show that the latter simply do not believe that interest rate hikes will continue much longer.
According to CME Group’s FedWatch Tool, next month’s FOMC meeting is likely to end in a repeat increase of 0.25%. These odds are highly flexible and react immediately to any new macro data, including the CPI.
For macroeconomics and stock market analyst James Choi, there is another side to the inflation story, one that involves a traditional headwind for crypto: the US dollar.
This week’s release will put dollar strength on a three-month free fall, he warned on April 10, paving the way for some potential further easing on risk assets.
“People seem to have no idea how the $USD $DXY will fall over the next 3 months,” he commented on a US dollar index (DXY) chart originally shared at the end of 2022.
“And this massacre will begin with this week’s CPI report. Mark my words, mark them well…”
Others look to first-quarter bank earnings as a source of potential market reactions, including Jim Bianco, president of macro research firm Bianco Research.
In part of the Twitter commentary, Bianco predicted that earnings would be “greater than the CPI.”
Bitcoin price volatility is increasing
If volatility is what traders want, they arguably already have it in abundance, data shows.
According to market data resource Kaiko, Bitcoin is on a diverging path from stocks when it comes to volatility, picking up action as the Nasdaq cools.
The events of last month, centered around the unfolding US banking crisis, were enough to send the “gap” between Bitcoin and the Nasdaq 30-day rolling volatility to its highest levels in a year.
Bitcoin’s Correlation with Gold, Kaiko revealed last week, is now higher than the S&P 500.
Furthermore, Kaiko noted that Bitcoin’s inverse correlation to the US dollar is also rapidly unwinding.
“Although BTC remains negatively correlated with the US dollar, the correlation is now almost negligible, falling from -60% to -23% YTD,” part of the Twitter comment read in the weekend.
BTC price sets new 10-month high weekly close
Bitcoin offered a late surprise to the weekly close on April 9, with BTC/USD making last-minute gains to seal the candle at just above $28,300 on Bitstamp, data from Cointelegraph Markets Pro and TradingView show.
This is impressive in itself, marking fresh ten-month highs for weekly bars as bears continually refuse to return to lower levels.
“Bitcoin is still holding the lower support area, still following the path,” Michaël van de Poppe, founder and CEO of trading firm Eight, wrote as part of his final analysis.
“Everyone wants to long for $25K, but I think we won’t get it. No clear bearish divergences on higher time frames either. Retest of $28.6K and most likely breakout to $30K+.”
During the close, BTC/USD managed to reach local highs of $28,540 before coming back to consolidate below the closing level.
Van de Poppe remains optimistic about the short-term outlook.
“Bitcoin is consolidating with support and going to $28,500. Another test of $28,600-29,000 and we will most likely break out significantly,” continued.
“More importantly; Then confidence comes back into the markets, so you’ll see more Altcoins start to break out.”
Related: Crypto winter can take a toll on hodlers’ mental health
In his own assessment of long-term market strength, popular trader and analyst Rekt Capital described Bitcoin as “very well positioned” to make further gains.
In terms of price action in 2023 so far, however, he remains conservative, noting the ongoing potential for BTC/USD to form a “double top” structure and return to its yearly open.
“Still unclear if BTC forms a double top here,” he summarized alongside an explanatory daily chart.
“Each side of the Double Top formation is about the same, although this newer part gets a little longer. If this second part gets even longer, it could completely distort the pattern.”
Ethereum Shanghai upgrade looms
As Bitcoin market dominance looks to return to form, BTC could see an internal source of friction this week as Ethereum (ETH) prepares to undergo its Shanghai hard fork.
Cointelegraph has extensively reported on the event, which will unlock — and open for sale — about $2 billion in ETH.
Analysts are classically divided over how intense the resulting selling pressure could be, with some more sober assessments arguing that there would be little incentive for holders to exit the market.
“For those who want to ‘sell the news’ after the Shanghai upgrade, it will take around 1 year or more for the stake ETH to be unlocked, it will be on a first-come, first-served basis,” analysis account The Modern Investor in summary on Twitter.
“Those who started in 2021 will be released first. Warning: You will only sell ETH to whales.”
While ETH/USD recently hit its highest levels since August, attempting to take $2,000, ETH/BTC is struggling to lift from ten-month lows.
“Rejected,” popular trader Cheds reacted to the latest events on the ETH/BTC daily chart.
Sustainable greed?
Despite crypto market sentiment being at its most “greedy” since the November 2021 BTC/USD highs, there are some encouraging signs from hodlers.
Related: Bitcoin Traders Expect ‘Big Move’ Next As BTC Price Flatlines At $28K
These come courtesy of research firm Santiment, which over the weekend noted an ongoing trend, echoing hodler action from earlier that year when Bitcoin was heading into uncharted price territory.
“There is a growing proportion of Bitcoin hodlers as traders seem to have become increasingly content to keep their bags untouched for the long term,” the tired.
“We saw a similar trend from January 2021 to April 2021 when $BTC rose above $64k for the first time.”
During Q1 2021, the “greed” in the crypto market was much more intense, and the Crypto Fear & Greed Index spent much of the time near its maximum levels – traditionally a warning that a correction is on the way.
The views, thoughts and opinions expressed herein are those of the authors alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.
