Bitcoin (BTC) could end up falling as low as $30,000 if Wednesday’s US inflation data comes in higher than expected, Alex Krueger, founder of Aike Capital, a New York-based asset management firm, warned.
The market expects the widely-watched Consumer Price Index (CPI) to rise 7.1% in the year to December and 0.4% month-on-month. This rally highlights why US Federal Reserve officials are rooting for a faster normalization of their monetary policy than previously expected.
Their preparedness is supported by a return to normal in the labor market, including higher incomes and lower unemployment claims, according to data released on January 7.
Crypto assets are at the extreme end of the risk curve. chirp Krueger on Sunday, adding that since they have benefited from the Federal Reserve’s “extremely loose monetary policy,” it suffices to say that they will suffer as the “unexpectedly tighter” policy shifts money into safer asset classes.
“Bitcoin is now one of the macro assets that is being traded as a proxy for liquidity conditions. With liquidity diminishing, macro players are now selling bitcoin, and all cryptocurrencies follow.”
The first rate hike in March 2022?
The Fed has been buying $80 billion in government bonds and $40 billion in mortgage-backed securities every month since March 2020. Meanwhile, the US central bank has kept benchmark interest rates near zero, making lending to individuals and businesses cheaper.
But the collateral damage of loose monetary policy is rising inflation, which reached 6.8% in November 2021, the highest in nearly four decades.
So now, the Fed, which once claimed that consumer price hikes are “temporarily,” has changed its stance from expecting no rate hikes in 2022 to discussing three hikes along with normalizing its balance sheet.
“It’s more dramatic than we expected and the Fed’s shift to a hawkish stance was a surprise,” Leo Grohosky, chief investment officer at BNY Mellon Wealth Management, told CNBC, adding:
“Most market participants expected higher rates, less accommodative monetary policy, but when you look at the Fed funds you have a 90% chance of a rally in March, New Years Eve which was only 63%.”
Little Bear Market?
Mike McGlone, chief commodity strategist at Bloomberg Intelligence, Call $40,000 is an important support level in the bitcoin market. Moreover, expect the cryptocurrency to eventually come out of its bearish phase as the world goes digital and treats Bitcoin as collateral.
The statement arrived with Bitcoin dropping from its record high on November 8 at $69,000, and is now over 40%. According to Eric Irvin, CEO of Blockforce Capital, the decline primarily dumped new investors, leaving the market with long-term stockholders.
This could be the start of a “mini-bear market,” the Bloomberg executive said, adding that such corrections are “completely normal” for crypto investors.
Related: Bitcoin Performs Classic Bounce At $40.7K As BTC Price Comes Full Circle From Jan 2021
Krueger also notes that bitcoin has already fallen so much from its record highs that it is now technically oversold. Therefore, if the CPI reading surprises to the downside, the markets can expect the Bitcoin price and trend to appear for a while.
“Wednesday you will get US inflation data,” Krueger said, adding:
“I think prices should fall around 41 and 44K until then, with a bullish bias given how strong the declines are to be rejected.”
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