Bitcoin will either break or make an effectual run this month. As equities, gold, and U.S. Treasuries offer competitive rates and reduced risk, Bitcoin’s price remains range-bound. The CPI report for this week could change things up.
In addition, Tuesday’s crypto markets are posting gains as long-term government bond yields fall significantly across the globe in response to far weaker-than-anticipated Chinese trade data for July.
Bitcoin prepares for the US CPI data report
Currently, the S&P 500 index is trading only 6% below its all-time high, which was reached in January of 2022. In the past, this would be interpreted as a bullish sign for risky assets, such as commodities and cryptocurrencies.
However, it appears that investors are using the stock market as a hedge against the recent inflation surge, which sustained at over 4% between April 2021 and May 2023.
Historically, Bitcoin and crypto investors have viewed inflation as a positive price influence, as evidenced by the previous all-time highs of $65,000 and $69,000 in 2021, which occurred during a period of monetary expansion and rising inflation.
However, the current circumstance is distinct because inflation is making a revival while the Federal Reserve has effectively reduced system liquidity. Consequently, the effect of inflation on cryptocurrencies remains unknown.
Economists anticipate that the Consumer Price Index for July, which will be released on August 10, will be around 3.3%, exceeding the previous month’s figure of 3% and the central bank’s target of 2%. Given the latest unemployment rate of 3.5% in June, which is close to a 40-year low, the likelihood of the Fed tightening the economy grows.
Gold, a traditional safe haven, has struggled to surmount $2,000 on multiple occasions since 2020, indicating a lack of confidence in its ability to mitigate risk.
Even traditional safe assets such as bonds are losing some of their allure as a result of the escalating federal debt. Bill Ackman, an investment magnate and hedge fund titan, reportedly shorted 30-year U.S. Treasury bonds out of concern for long-term inflation.
A report released by the U.S. Treasury Department on July 31 revealed a $1 trillion estimate for quarterly net borrowing and an unanticipated downgrade of U.S. debt by Fitch Ratings, adding to financial market concerns.
As a result, investors are now pursuing alternative markets, and Bitcoin whales have increased leveraged long positions using derivatives despite the price of the crypto remaining around $29,500.
There is little evidence to suggest that Bitcoin will experience a substantial spike in the short-to-medium term if inflation becomes widespread in the United States. Nonetheless, bullish investors have reason to be optimistic, as the crypto has shown strong support at the $29,000 level.
The Chinese economy affects the crypto market
Tuesday’s crypto markets are posting gains as long-term government bond yields fall significantly across the globe in response to far weaker-than-anticipated Chinese trade data for July. Additionally, the move comes one day after payments behemoth PayPal (PYPL) announced plans to launch a stablecoin in the coming days.
Bitcoin (BTC) climbed 3% in the past 24 hours to $29,600, propelling a gain of 2.41%. Other noteworthy movers include Solana (SOL), Toncoin (TONNE), and Chainlink (LINK), all of which have posted gains exceeding 3%.
China reported a 12.4% year-over-year decline in imports in July, which was more than double what economists had predicted. Exports fell by 14.5%, which was worse than the predicted 12.4% decline. These levels of decline have not been observed since the COVID-19 lockdowns, and the news indicates that Beijing may need to take additional measures to stimulate China’s economy.
The yield on the 10-year U.S. Treasury note has decreased by 11 basis points to 3.98%. Last week, the 10-year reached a 2023 high just short of 4.20 percent. On Tuesday, yields on long-term government bonds are falling further across Europe, including in Germany, where the 10-year Bund yield is down 15.4 basis points to 2.445%.
Patrick Harker, president of the Federal Reserve Bank of Philadelphia, stated in a speech that, barring “alarming” new data, he is comfortable with the central bank not increasing interest rates further. He added, however, that rate reductions are a distant possibility.
Source: https://www.cryptopolitan.com/bitcoins-reaction-to-the-aug-cpi-data/