Crypto through the macro lens
The crypto market is being crushed by macroeconomic factors as major cryptocurrencies continue to push into previous support levels. Despite today’s red trading session, these assets continue to trade in a tight range and low volatility environment.
A report from Arcane Research claims that the upcoming Consumer Price Index (CPI), due to be published this Thursday, could change the current status quo. The research first expects the calculation to trigger volatility across the nascent asset class.
In 2022, CPI events have driven sudden price movements as market participants priced in potential decisions by the US Federal Reserve (Fed). The CPI is the measure of inflation in US dollars and has been the dominant factor behind the shift in monetary policy from the financial institution.
At the moment, the September 2022 CPI print may provide deeper insight into the Fed’s reasoning and future decisions. As Arcane Research noted, the CPI print for August was higher than the market expected.
As a result, Bitcoin and the crypto market trended lower and were rejected from key resistance levels. In the next CPI print is higher than expected, the cryptocurrency may resume its annual lows of $17,600. The research firm noted:
The year-over-year forecast for the upcoming CPI release on Thursday at 14:30 CET is estimated to be 8.1% with monthly CPI growth of 0.2% and MoM growth in core CPI of 0.5%.
The crypto market is all about macro
As investors and institutions turn their attention away from bullish crypto events, such as the Ethereum “Merge”, the correlation between digital and traditional assets is increasing. Over the past two months, cryptos have moved in tandem with major traditional stocks.
As shown below, Bitcoin was able to outperform one of these two indices, the Nasdaq 100, but the S&P 500 remained the best performer. However, the crypto is still relatively strong and staying away from key support, BTC has been able to hover around its 2017 all-time high.
Meanwhile, since key macroeconomic events in September, the traditional and digital asset classes continue to increase correlation. On the latter, Arcane Research noted:
Since the last CPI release, BTC has slightly outperformed the Nasdaq, while slightly underperforming the S&P 500. However, on a relative strength basis, BTC has held strong recently. BTC has recovered from its September 21st FOMC.
Additional data provided by trading desk QCP Capital coincides with the increase in correlation between digital assets and traditional markets. This status quo will remain as long as there is no new narrative in crypto, the firm claims.
Market participants are betting on a potential Fed pivot from their current monetary policy. The financial institution has begun to receive pressure from international bodies and large hedge funds, but the market does not rate this possibility as likely in the short term.
4/ We believe that as long as labor demand remains robust (as shown by last week’s upside surprise in NFP) and CPI prints are high, the Fed will continue to keep financial conditions tight, with no pivot in sight.
— QCP Capital (@QCPCapital) 11 October 2022
