Cryptography through a macro lens

The crypto market is being crushed by macroeconomic factors as large cryptocurrencies continue to push to previous support levels. Despite today’s loss trading, these assets continue to trade in a tight range and low volatility environment.

This Thursday’s printout of the Consumer Price Index (CPI) could change the current status quo, according to a report from Arcane Research. The survey initially expects the indicator to unleash volatility across early asset classes.

In 2022, CPI events triggered sharp price swings as market participants bid on a potential decision from the US Federal Reserve (Fed). The CPI is the benchmark for inflation in US dollars and has been the dominant factor behind monetary policy shifts from financial institutions.

For now, the September 2022 CPI could provide greater insight into the Fed’s rationale and future decisions. As noted by Arcane Research, his CPI print in August was higher than the market expected.

As a result, bitcoin and crypto markets are trending downwards and have been removed from key resistance levels. At the next CPI, print could be higher than expected and crypto could return to a yearly low of $17,600.

The CPI y/y forecast, released at 14:30 CET on Thursday, is estimated at 8.1%, with CPI m/m growth of 0.2% and core CPI m/m growth of 0.5%.

The Crypto Market Is All About Macro

As investors and institutions turn their attention to bullish cryptocurrency events like Ethereum “mergers,” the correlation between digital and traditional assets increases. Over the past two months, cryptocurrencies have moved in step with major traditional stocks.

As you can see below, Bitcoin was able to outperform one of these two indices, the Nasdaq 100, while the S&P 500 remained the best performer. However, the cryptocurrency remains relatively strong with key support subdued, with BTC hovering near his 2017 all-time highs.

Meanwhile, correlations between traditional and digital asset classes have continued to rise since major macroeconomic events in September. Regarding the latter, Arcane Research said:

Since the last CPI release, BTC has marginally outperformed the Nasdaq and marginally underperformed the S&P 500. However, based on relative strength, BTC has held up strongly recently. BTC has recovered from his September 21st FOMC.

Additional data provided by trading desk QCP Capital is consistent with the increasing correlation between digital assets and traditional markets. The company claims that this status quo will continue unless there is a new narrative for cryptocurrencies.

Market participants are betting on the possibility that the Fed will reverse its current monetary policy. Financial institutions are starting to come under pressure from international bodies and major hedge funds, but the market has not priced this possibility into an impossibility in the short term.

4/ As long as labor demand remains strong (as evidenced by last week’s NFP positive surprise) and the CPI stays high, the Fed will continue to maintain tight financial conditions and be ready for a turnaround. I think the outlook is bleak.

— QCP Capital (@QCPCapital) October 11, 2022