Traders are arranging their Bitcoin investments according to this week's anticipated US inflation figure announcement.
Investors and traders are keeping a close eye on the upcoming U.S. Consumer Price Index (CPI) report for July, as it could potentially influence the price of Bitcoin.
According to recent reports, among bond traders, a rate cut is all but certain. However, pressure from the Trump administration over Federal Reserve Chair Jerome Powell's tenure remains a concern for investors. This uncertainty could impact the market's expectations for Fed rate cuts, which have previously fueled Bitcoin rallies.
If the U.S. CPI print on Tuesday comes in hotter than expected, it is likely to negatively impact Bitcoin's price in the short term. This is because hotter inflation reduces the market's expectations for Federal Reserve rate cuts or monetary easing, leading to increased uncertainty and sell-offs in risk assets like Bitcoin.
Key supporting points suggest that Bitcoin's price has shown a tendency to dip ahead of major CPI releases in anticipation of potential policy tightening or reduced monetary easing, followed by possible rallies if the data is favorable. The current tightening correlation between Bitcoin and U.S. equities (correlation around 0.76) means that Bitcoin price movements are increasingly influenced by macroeconomic data like CPI. Thus, a hotter-than-expected CPI could lead to synchronized sell-offs in both stocks and Bitcoin.
Recent examples include Bitcoin falling from above $124,000 to below $117,000 after hotter inflation data dampened rate cut hopes, highlighting Bitcoin's sensitivity to inflation prints influencing Fed policy expectations.
Open interest in Bitcoin trading has decreased, indicating traders are closing their positions. The recent dip in Bitcoin's price is primarily due to profit-taking. Singapore trading firm QCP stated that a hotter CPI print could "stall the rally." With prices at critical resistance, some profit-taking is probable ahead of CPI, according to QCP.
Daniel Liu, CEO of Republic Technologies, stated that the CPI figure's impact on expectations for Fed policy is more important than the figure itself. Overall, puts on these strikes for the end of August tenor make up almost 40% of all open interest for the end of August.
Experts believe that if the inflation rate sees a positive surprise by a significant margin, Powell could delay further cuts. Cumulative volume delta has dropped, suggesting selling as traders take profit from long positions.
However, it's important to note that if inflation eases or market sentiment shifts, Bitcoin may still rally afterward. The market's ability to absorb recent "OG whale" sell-offs without losing momentum reinforces QCP's structurally bullish outlook.
A softer reading in the U.S. Consumer Price Index report could support a dovish stance from the U.S. Federal Reserve on rate cuts, which could potentially fuel another Bitcoin rally. Traders are "hedging event risk" with put buying to protect their investments from a downward surprise in Bitcoin's price, according to QCP. According to Derive's data, 10% of all Bitcoin options noted last week were for the strikes of $95,000 and $100,000.
In summary, the upcoming U.S. Consumer Price Index report for July is being closely watched by investors and traders. A hotter-than-expected CPI reading is likely to pressure Bitcoin's price downward initially due to subdued Fed easing prospects and increased risk aversion among investors. However, Bitcoin may still rally afterward if inflation eases or market sentiment shifts.
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