Cryptocurrency is a digital or virtual currency that uses cryptography for security and anonymity. Cryptocurrencies have been made popular by a group of people who desire to be free from any government regulations or intervention, who want to see them return to the gold standard, and who are happy with being able to trade on the internet without interference.
Cryptocurrencies are not physical money in the form of coins or bills, but entries to an online database that describes specific transactions. Instead of being physical cash carried around and exchanged in the real world, cryptocurrency payments exist purely as digital entries to an online database describing specific transactions. These transactions are verified by computers within the network – without any central authority or institution playing any role.
As large cryptocurrencies push into previous support levels, macroeconomic factors are crushing the crypto market. This asset group continues to trade in a tight range and with low volatility, despite today’s red trading session.
According to Arcane Research, the Consumer Price Index (CPI) print expected this Thursday could change the status quo. Research indicates the metric will first unleash volatility across the nascent asset class.
In 2022, CPI events have driven sudden price movements as market participants priced in potential decisions from the U.S. Federal Reserve (Fed). Financial institutions have shifted their monetary policy in response to the CPI, a benchmark for inflation in U.S. dollars.
Currently, the September 2022 CPI print could provide insight into the Fed’s rationale and future decisions. According to Arcane Research, the CPI print for August was higher than what was expected by the market.
Due to this, Bitcoin and the cryptocurrency market trended lower as a result of being rejected from key levels of resistance. In the next CPI report, if the print is higher than expected, the cryptocurrency could revisit its yearly lows at $17,600 again. According to the research firm:
In the upcoming CPI release to be released on Thursday at 14:30 CET, the year-over-year forecast is expected to be 8.1%, with a month-over-month growth in the CPI forecast at 0.2% and a growth in core CPI forecast at 0.5%.
The crypto market is all about macroeconomics
It has become apparent that the correlation between digital assets and traditional assets is increasing as investors and institutions turn their attention away from bullish crypto events, such as the Ethereum “Merge”. There has been a correlation between crypto assets and major traditional equities over the past two months.
It is clear from the chart above that Bitcoin outperformed one of these two indexes, the Nasdaq 100, but the S&P 500 remained the best performer and showed the greatest increase in value. In spite of this, crypto continues to be relatively strong, holding off from key support. Bitcoin, in the meantime, has been able to hover around its all-time high of 2017.
Source: Arcane ResearchIt is interesting to note, however, that since key macroeconomic events took place in September, the correlation between traditional and digital asset classes has continued to increase. As a result of the latter, Arcane Research noted the following:
BTC has outperformed Nasdaq since the last CPI release, while S&P 500 has underperformed slightly since the last CPI release. The price of Bitcoin has, however, been holding off strongly on a relative strength basis over the past few weeks. Bitcoin has recovered from its FOMC meeting that took place on September 21st.
In addition to the data provided by QCP Capital, there has been an increase in the correlation between digital assets and traditional markets, which coincides with the data provided by the trading desk. It is argued by the firm that this status quo will continue so long as there is no new narrative in the crypto sector.
It is expected that market participants will bet on a possible pivot by the Fed from its current monetary policy. In recent weeks, the financial institution has been under pressure from international organizations, as well as hedge funds, but the market is not pricing in that possibility as something likely to occur in the near future.
4/ The Fed will continue to keep financial conditions tight, with no sign of a pivot in sight for as long as labor demand remains robust (as demonstrated by last week’s positive surprise in NFP data) and CPI prints high.
— QCP Capital (@QCPCapital) October 11, 2022
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