đ1-12) The Bitcoin ETF inflows and the halving are already âyesterdayâs news.â Bitcoin has found a new price-determining factor, which, unfortunately, points down. The funding rate has turned negative. Everybody might soon have a chance to buy more Bitcoin at lower prices.
đ2-12) Weâve analyzed our convincing argument below. As always, we let the data speak, adding our interpretation, but we let every one conclude by presenting the evidence. One of the most critical tailwinds has turned into a sizeable headwind. Few might have noticed this, but Bitcoin is already reacting to this specific data point.
Macro has taken over as the critical driver for Bitcoinâs price discovery.
đ3-12) While Bitcoin was making new all-time highs by mid-March, two higher-than-expected inflation data points caused Bitcoin prices to correct by -15%. On March 12, the CPI came in at +3.2% while the PPI printed +1.6% two days later â both were above expectations and signaled that inflation pressures could re-enter the Fedâs interest rate cut projections.
đ4-12) Bitcoin dropped until March 20, when Fed Chair Powell reassured investors that the Fed was still expecting three rate cuts in 2024 and was considering slowing down its balance sheet unwinding. On the margin, this signaled a more favorable liquidity environment for risk assets, and Bitcoin loves liquidity.
Bitcoinâs reaction to inflation, economic data, and Fed statements
đ5-12) Better US employment data in early April also suggested that the US consumer would still generate enough income to keep spending despite higher interest rates. A bullish argument can be made that the $6 trillion AUM in money market funds generates $300 billion of annual spending power for consumers as long as interest rates stay at 5%.
đ6-12) Fast-forward to the subsequent inflation data release on April 10, when the CPI rose even higher to 3.5%, and the next day, when the PPI rose much higher to 2.1%. Bitcoinâs reaction was similar: a 15% drop. But it is no longer Bitcoin that is seeing downside volatility. US tech stocks, notably NVIDIA, are also correcting lower. Risk assets are dancing to inflation and central bank decisions again.
7-12) The next FOMC meeting is on May 1, and markets will be, at best, in a volatile sideways correction mode. Fed officials are trying to prepare the market for the remainder of 2024, which might see no rate cuts if those inflation data points continue to print higher.
đ8-12) As mentioned above, by March 20, Bitcoin started rebounding again as Powell assured the market about the Fedâs intention to cut interest rates. But this was before the higher-than-expected consecutive inflation numbers on April 10/11.
đ9-12) This time, Powell or other Fed members will only come to the rescue once those inflation data points decline again. Therefore, the May 1 FOMC meeting should be mildly hawkish unless the market prices this itself ahead of the FOMC meeting. Therefore, a potential reversal date would be May 1 or when the next round of CPI/PPI data points will be released (around May 10/14); by then, Bitcoin could have plummeted to 52,000/55,000.
đ10-12) We have been pointing out Bitcoinâs triangle formation, which started after those first inflation prints on March 10/12. In a bull market, this triangle formation has a 70% chance of breaking to the upside, but there is always a chance that it will fail.
đ11-12) With Bitcoin breaking the triangle around the 68,000 level, we can expect a potential down move equivalent to the triangle's starting range of 12,000-13,000 BTC points. This would indicate that Bitcoin could fall towards 55,000.
đ12-12) Another potential downside target is 52,000, the next Fibonacci level if the 60,000 level is broken. So far, this level has held up as solid bids were in the market. However, unless we receive confirming statements from Powell that three rate cuts are still possible this year and that the CPI/PPI were only temporarily higher, Bitcoin might continue to be in this volatile, challenging range that could push prices lower to 52,000/55,000.
Bitcoinâs potential downside targets
