After the release of the US inflation data, how did the price of Bitcoin react to this event?
Let’s see all the details below.
The current Bitcoin market cycle: smaller drawdowns compared to other years
At this moment the Bitcoin market is supported by long-term holders, who like true “diamond hands” refuse to sell their cryptographic stocks.
In the meantime, however, since the beginning of 2024 in conjunction with the approval of spot ETFs, short-term bettors have increased significantly: their holdings now amount to a significant portion of the Bitcoin supply.
Before delving into the role of the various Bitcoin holders in the current market scenario, let’s see how the crypto is performing in terms of price in this cycle.
After the long bear market of 2022 which was driven by high inflation in the US, increases in interest rates and collapses of cryptographic companies, the bulls have returned for the 4th bull market in history.
The 2023-24 cycle of Bitcoin closely resembles the other previous cycles, with an initial phase of strong rise followed by more or less significant corrections and subsequent leg up.
In the last quarter, more precisely in the months of May and June, we recorded the most significant drawdown since the end of the bear market, with a drop of -26% from the ATH.
Although this seems significant for the price action, it is important to note that this downward trend in the bull cycles seems to be scaling down.
Unlike other years, this drawdown seems to be the least violent ever recorded in a similar context like the current one.
Leaving aside the two years following the Genesis Block, we notice in fact how the drops in previous bull markets fall between -36% and 71%.
However, if at first glance this cycle seems to be one of the best in terms of price evolutions, we are mistaken. The maturity of a cycle is not calculated solely and exclusively from the partial data of the drawdowns, but it is necessary to take into account several factors.
One of these is represented by the historical performance of Bitcoin from the date of the halving, event of halving the block reward for the miners.
According to what was reported by Glassnode, in fact, the 2023-24 cycle is the worst among the 4 in this sense, with a return of -13%.
In the 2011-13 cycle and in the 2020-21 cycle, positive performances were recorded, respectively 117% and 30%, with the same number of days elapsed since the halving.
In the 2016-17 cycle, we saw a negative return similar to this cycle, but with less selling pressure up to -7%.
The market is driven by Bitcoin holders, but speculators are increasing
The Bitcoin market is still dominated by long-term holders , who hold about 14.8 million BTC, equal to 70% of the supply.
By long-term holders, we refer to those individuals who hold their coins for at least 155 days without moving them.
This type of entity usually starts liquidating positions before the major market tops, and then continues with the accumulation activity.
According to what is reported by Glassnode, at the moment it is the short-term holders who are moving the price of Bitcoin, in a scenario reversed compared to the classic dynamics.
Since the beginning of the year, while the “diamond hands” have sold about 1.5 million BTC, the speculators have grown to encompass more than 1 million BTC.
This was accompanied by an explosive bullish price action in response to the listing of the spot ETFs and the containment of US inflation.
However, this demand profile has reached a growth plateau in recent months, suggesting that a balance between demand and supply had formed in Q2-2024. Since then, this has given way to an excess supply, as fewer Long-Term Holders are realizing profits and fewer new buyers are stepping forward to accumulate.
Analyzing the behavior of short-term speculators, we can get an idea of where the price of Bitcoin is headed. Usually, the lows of each cycle are established when the so-called “short-term holders” hold BTC shares in loss amounting to 1-2 million BTC.
As reported by Glassnode, in extreme cases the share of BTC held by these entities with a purchase price lower than the market price reaches up to 3 million BTC.
As of today, after the drop in recent days to 53,000 dollars, the volume of coins in losses of the bettors has risen to over 2.8 million BTC.
This suggests that the bottom of the Bitcoin price has either already been reached, or will be visited shortly.
CPI US: the data on consumer goods inflation and the impact on the price of Bitcoin
Today the short-term holders of Bitcoin did not sell to the whales, especially after the CPI data on inflation was released in the US.
The consumer price index in the United States had an estimated forecast of 3.1%, down from the 3.3% of the previous survey.
According to what has been published, the tightening easing policy of the United States has borne fruit as inflation seems to have fallen to 3%, with better data than expected.
As a result, investors, supported by the thought of a more likely rate cut starting in September, have made their demand felt in the crypto market.
In the first minute after the release of the CPI and inflation data, the price of Bitcoin indeed increased by 1.06%, accompanied by particularly significant volumes.
However, just 20 minutes after the data release, the bears returned to put pressure on the market, bringing prices back to pre-CPI values.
At the time of writing the article BTC is trading at a price of 58,700 dollars, up by 1.26% compared to yesterday, and by 2.48% compared to last week.
These very short-term movements are unpredictable and could create confusion in an analysis more focused on higher time frames.
We must not take into account how the market reacts to the release of inflation data but rather how it will react overall in the coming weeks/months.
By doing so, we can actually realize whether these dynamics can favor or not the continuation of the bull market for the cryptocurrency.
In any case, indicatively the data today suggest good prospects for the next two quarters of the year.