Original source: Bijie.com
Reprinted: Koala, Mars Finance
At 21:30 Beijing time, the US Congress will release the annual rate data of the Consumer Price Index (CPI). More importantly, the Federal Reserve's important monetary institution, the FOMC, will make an important speech based on the CPI inflation data. Today, Bitcoin is at its highest level in history, and the entire digital currency market has high potential, and CPI data is crucial to understanding inflation trends. Bitcoin will now fluctuate with the inflation pressure of the US dollar and the subsequent actions of the Federal Reserve.
The author will explore the FOMC speech, the upcoming CPI data, and how the Fed’s policy stance triggers the internal logic of Bitcoin prices.
Why Inflation Data and Fed Actions Matter to Bitcoin
FOMC Introduction
Today, Bitcoin's reputation as "digital gold" makes it extremely attractive for investors seeking to hedge against inflation and the debasement of fiat currencies. Rising inflation typically boosts demand for assets considered a store of value, including Bitcoin. As a result, when CPI data shows accelerating inflation, Bitcoin prices tend to rise, although market conditions may curb such gains.
However, as the Fed is committed to curbing inflation, a high CPI reading could prompt it to take policy changes such as raising interest rates, which has historically weakened Bitcoin's appeal. As interest rates rise, the opportunity cost of holding non-yielding assets such as Bitcoin increases, which could trigger a sell-off as investors turn to traditional interest-earning investments.
There is this mutual logic between inflation rates, monetary policy, and Bitcoin prices.
FOMC Chair Barkin's stance on inflation and interest rate policy
Barkin is known for being pragmatic within the Fed and is known for advocating a balanced approach to interest rate adjustments. In recent speeches, he expressed a willingness to maintain policy flexibility and avoid overreacting to temporary fluctuations in inflation.
Given his voting power on the FOMC in 2024, if CPI shows persistent inflationary pressure, he and other FOMC members are inclined to tighten monetary policy, which will trigger more caution in the market, especially for speculative assets such as Bitcoin.
The author analyzes the impact of CPI data on Bitcoin
The annual CPI rate provides a snapshot of year-on-year inflation, and if it is higher than expected, it may confirm that inflation remains stubborn. If the CPI report shows higher-than-expected inflation, the market may interpret it as a signal of further interest rate hikes, which puts pressure on Bitcoin.
Conversely, CPI data indicating cooling inflation could spark optimism about a dovish Fed policy stance, which would drive incremental flows into Bitcoin as inflation concerns ease.
Bitcoin is currently oversold
Bitcoin has recently experienced a strong rally to a new all-time high. I attribute this surge to institutional investors, a weaker dollar, and market expectations of a dovish Fed policy stance. However, Bitcoin’s technical indicators show that it may be overbought, suggesting a pullback may be imminent.
Bitcoin is currently trading close to the upper Bollinger Band, a common signal of overbought conditions. Another momentum indicator, the relative strength index (RSI), has also entered overbought territory, above 70, suggesting that buying pressure may have reached a short-term peak. These signals often foreshadow corrections, indicating that asset prices have risen too quickly relative to their historical performance.
Additionally, Fibonacci retracement levels show a key support zone between $75,000 and $80,000. If these support levels hold, a pullback to these levels could compound a healthy correction cycle for technical indicators.
However, if the CPI data exceeds expectations and triggers a more severe sell-off, Bitcoin could test the deeper support zone around $66,000.
Let’s predict possible outcomes for Bitcoin
1. Higher-than-expected CPI and hawkish Fed signals
A higher-than-expected CPI would signal continued inflation, increasing the likelihood of further rate hikes. Such an outcome could trigger a sell-off in Bitcoin as investors anticipate further dollar strength.
Bitcoin retests the $75,000 and even $66,000 support zones as institutions sell risk assets due to tightening financial conditions.
2. CPI in line with expectations and dovish Fed stance
If CPI is in line with market expectations and the FOMC maintains a dovish stance, Bitcoin will see limited direct impact. In this case, Bitcoin price fluctuates between $80,000 and $90,000.
If subsequent data or statements show that Fed policy is less restrictive, Bitcoin will rebound again.
3. Lower-than-expected CPI and dovish Fed signals
The lower-than-expected CPI reinforces expectations that the Fed will pause its rate hikes, in which case Bitcoin could surge again and is expected to test its all-time high above $100,000.
Because in a potentially low-interest rate environment, Bitcoin's appeal as a hedging tool will increase.
Finally, my article has little impact on long-term Bitcoiners. However, the release of inflation data and the speeches of Fed officials have brought about a predictable fluctuation in Bitcoin, which has a great impact on Bitcoin contract traders.
