As the history of quotes shows, the movements of bitcoin and the dollar are inversely correlated. A strong dollar is almost always a weak BTC. And so, is it not necessary to expect the growth of cryptocurrency now? US CPI data was published today. Experts (as well as the White House) expected that they would be "raised" - up to 9%. However, the reality turned out to be somewhat harsher, and the indices rose in all directions in June:
- CPI (Y/Y) – 9.1% (8.6% in May);
- CPI (M/M) – 1.3% (1.0% in May);
- Core CPI (Y/Y) – 5.9% (6.0% in May);
- Core CPI (M/M) – 0.7% (0.6% in May).
This increase in inflation in the US means an aggressive hike in the base rate, a subsidence of the economy and an increasingly clear threat of a recession. And for the USD/BTC pair - updating the highs for the dollar and searching for the bottom for the cryptocurrency, stuck in the range of 19-21,000. So far, around the price of 19,350 US dollars.
How are investors reacting to the tense macro environment? After all, by and large, nothing new is happening for the market right now. The same high inflation, the same central bank trying to extinguish it, and the same confused and frightened traders... As the indicator (Bitcoin Risk Signal) shows, the crypto market feels rather uncertain, but the price movement is becoming more and more noticeable. Investors are still indecisive and digest the incoming economic data, waiting for the next meeting of the Federal Reserve Commission and clarification of further actions of the central bank. That is, the bitcoin market (due to its direct correlation with the US stock market and the reverse one with the US dollar) now largely depends on the position of the US Fed.
And what will be the Fed's position? What factors will it rely on?
- Consumer spending is the most significant factor, accounting for about 70% of the US economy.
- Consumer confidence (leading indicator) falls to 11-year lows in June (2011)
- Retail sales (synchronous indicator) slowed down as shoppers prefer to save.
- Decline in spending, decline in real disposable income of consumer demand - pessimistic signs
- Decline in property prices (key factor) shows the level of wealth of households
- High demand for short-term goods and low demand for durable goods
The recession of the economy and the decrease in demand (primarily for goods with a longer service life and higher cost) go hand in hand. Further, they are joined by the accumulation of stocks of enterprises whose products do not find a market. And the more the inventory/sales ratio grows, the less the company receives profits and the less it invests. Reduced investment, in turn, weakens the economy even more. The reduction in domestic demand also slows down imports, while the rising dollar strengthens exports. The trade balance is skewed and goes into negative territory. Sounds like a slowdown in the economy and a looming recession? And how!
How do crypto investors act in this situation? As economic data fuels aggressive market action, there remains a risk for bitcoin to fall further. In this situation, we are seeing an unprecedented outflow of bitcoin from exchanges. Basically, this happens when investors put aside bitcoin for the long term - they accumulate at a discount. That is, the willingness to sell is falling, but purchases at a low price (70% of peak values) are growing. There is a significant possibility that these purchases are being made by short-term investors, as the 17,500 price low was bought back relatively quickly and the support level has now moved up and is consolidating in the 19,000-21,000 range.
Will there be a bearish breakout for bitcoin? Most likely, yes. As long as the US dollar index continues to rise, the mood in the crypto market will remain bearish. As history shows, the bull market for BTC began only during periods of dollar declines in the index against a basket of currencies. And the greenback rose by 4.75% only in July, and only against the euro. So the US dollar is not going to decline yet. Right now, BTC is moving along a descending resistance line and may well drop from a short-term ascending parallel channel.
Moreover, analysts say that bearish bottom signals for bitcoin have not yet been finalized.
The formation of the bottom can be judged by two signs:
- departure of investors-speculators;
- the transition of crypto coins to holders (long-term investors), which have a relatively low sensitivity to the current price.
Previously, the ratio of long-term/short-term investors was 34-35% versus 3-5%. At the moment it looks like 28.5% versus 16.2%. As you can see, the share of holders has decreased significantly.
Surrender continues among the miners. Rising electricity costs require significant spending and "wash out" their bitcoin reserves. For example, mining organizations in Texas were forced to stop working amid a peak demand for electricity caused by a strong heat wave. In general, the total income of bitcoin miners decreased by 26% in June, amounting to $668 million. And the indicator itself began an accelerated decline in March.
