According to CoinDesk: Bitcoin (BTC) is poised for potential market shifts as it awaits crucial U.S. inflation data and bond market signals. The U.S. Consumer Price Index (CPI) report, set to be released on Thursday at 12:30 UTC (8:30 ET), is expected to show continued progress on the inflation front, which could cement the case for Federal Reserve (Fed) rate cuts.
Key Expectations and Market Implications
- Monthly CPI Inflation: Expected to rise 0.1% month-over-month (MoM) in June after remaining flat in May.
- Annual CPI Inflation: Forecast to increase by 3.1% year-over-year (YoY), down from 3.3% in May.
- Core CPI Inflation: Predicted to rise 0.2% MoM and 3.4% YoY, excluding volatile food and energy prices.
Impact on Bitcoin and Risk Assets
Increased prospects of Fed rate cuts could bode well for risk assets, including Bitcoin, potentially aiding its recovery from the July 5 lows of around $53,500. However, the recovery has stalled, with BTC buyers struggling to establish a foothold above the $59,000 mark.
Algorithmic trading firm Wintermute told CoinDesk, "CPI data will be closely watched, with markets expected to react significantly to this release. Analysts' optimistic outlook for late 2024 and 2025 hinges on the FOMC reducing policy rates, as lower rates typically increase liquidity, driving investors towards 'longer-tail' assets like cryptocurrencies."
Treasury Yield Curve and Market Sentiment
BTC bulls should also monitor the potential "steepening" of the Treasury yield curve. Slower inflation and increased rate cut bets can boost prices for the two-year note, sending its yield lower. Meanwhile, the yield on the 10-year note may stay elevated due to market fears of bigger budget deficits under a potential Trump presidency.
The net effect could be a "bull steepening" of the yield curve, represented by the spread between yields on the 10- and two-year notes. Historically, periods of bull steepening have coincided with economic contractions and risk aversion, which could impact broader market sentiment, including Bitcoin.
Historical Context and Expert Insights
According to the CAIA Association, periods of bull steepening, such as those in 1990-1992, 2001, 2003, 2008, and 2020, were recessionary periods. "Equities typically do not fare well during this type of regime, and their performance during these times clearly lags the overall historical average," CAIA noted.
Noelle Acheson, author of the "Crypto Is Macro Now" newsletter, observed that a sharp steepening has always preceded the beginning of a recession. Acheson added that the curve has recently steepened somewhat due to lingering political uncertainty in the U.S., which could imply a possible inflation uptick driven by tariffs and a flood of issuance to fund promised tax cuts.
Market Outlook
Investment banks like JPMorgan and Citi are betting on the steepening of the yield curve. According to the CME's FedWatch tool, traders have priced about a 70% chance of a Fed rate cut in September and see a rising probability of another cut in December.