On Wednesday, Bitcoin (BTC) surged to a high of $61,900 following the release of July’s Consumer Price Index (CPI) inflation data by the US Bureau of Labor Statistics (BLS). The data showed a 2.9% increase, a slight drop from the June figure, which initially sparked optimism in the market. However, this upward momentum was short-lived. Bitcoin’s price quickly reversed course, dropping below the crucial $60,000 level.
Bitcoin’s Brief Surge Above $61,000
A sudden price reversal happens when an asset’s value initially moves in a seemingly positive direction, often misleading traders, only to swiftly change course. This was the case with Bitcoin, which climbed to nearly $61,900 after the release of the CPI data.
As the market digested the news, Bitcoin’s price shifted downward, falling below $60,000 – a level that now seems to have become a significant resistance point. At the time of writing, Bitcoin (BTC/USDT) is trading at $59,700 on Gate.io, marking an 7% decrease over the last 24 hours.
Since reaching a peak of $62,500 on August 9, Bitcoin has struggled to maintain its position above $60,000. This has led to a reduction in the number of daily profitable transactions. Analysing the ratio of daily transaction volume in profit versus loss (based on a seven-day moving average) reveals that on Thursday, Bitcoin traders experienced more losses than gains. Currently, this ratio stands at 0.88, indicating that for every transaction resulting in a loss, only 0.88 transactions have been profitable.
Additionally, the past 24 hours have seen a rise in demand for short positions, as reflected in Bitcoin’s negative funding rate. At the time of writing, the coin’s funding rate across various cryptocurrency exchanges is -0.004%. When the funding rate is negative, it suggests that more traders are anticipating a decline in Bitcoin’s price, opting to short the asset rather than buying it in hopes of a price increase.
CPI Data Explained
Low Consumer Price Index (CPI) inflation generally indicates that the cost of goods and services is increasing at a slower rate. For the cryptocurrency markets, particularly assets like Bitcoin, this can have several implications. Firstly, lower CPI inflation often suggests that inflationary pressures within the economy are easing, which reduces the likelihood of aggressive interest rate hikes by central banks such as the Federal Reserve. Cryptocurrencies, which are considered high-risk assets, tend to benefit from a lower interest rate environment because it lowers the opportunity cost of holding non-yielding assets like Bitcoin.
Moreover, when inflation is low, investors might feel more confident in taking on riskier investments. As a result, cryptocurrencies, known for their volatility and speculative nature, could see increased demand as investors look to diversify their portfolios or seek higher returns in a low-inflation environment. For long-term holders of cryptocurrencies, low inflation also means that the value of fiat currency isn’t eroding quickly, which can make holding digital assets more appealing, as there is less urgency to convert them into fiat currencies.
Additionally, the crypto markets are highly sensitive to macroeconomic indicators like CPI. The release of low inflation data can trigger positive sentiment and speculative behavior, potentially leading to short-term price rallies in cryptocurrencies. However, if the CPI is unexpectedly low, it might also signal underlying economic weaknesses, prompting some market participants to adopt a more cautious approach. Overall, low CPI inflation tends to create a favorable environment for digital asset investments by reducing monetary policy pressures, supporting risk-taking, and stabilizing purchasing power.
BTC Price Projections
Bitcoin’s decline below the $60,000 mark has also pushed its price under its 20-day exponential moving average (EMA), which tracks the coin’s average price over the last 20 trading days. When an asset’s price falls below this moving average, it often signals a bearish trend or downward momentum in the near term. This indicates that Bitcoin’s recent price movements are weaker compared to its average performance over the past 20 days.
Should Bitcoin continue to drop further from this critical moving average, it may descend to the next support level at $54,800. On the other hand, if market sentiment shifts and turns bullish, Bitcoin’s price could recover and retake the $60,000 level, potentially rising to $61,400.
Investors Chose to HODL
Many investors are choosing to hold onto their Bitcoin rather than sell, with some even accumulating more, despite the volatile market conditions. This trend has been particularly evident since mid-2023 and has continued into 2024, especially leading up to the anticipated Bitcoin halving event. According to recent data, entities, including both retail and institutional investors, have been steadily increasing their Bitcoin holdings. This accumulation is a strategic move, as investors anticipate that Bitcoin’s limited supply and historical price patterns post-halving could drive future price increases.
Glassnode’s analysis shows a significant rise in the accumulation trend score, indicating that a substantial portion of the market is moving towards holding rather than trading Bitcoin. This behavior suggests a growing confidence in Bitcoin’s long-term value, even as the market faces uncertainties such as global economic shifts and regulatory developments. Over the past few months, over 374,000 BTC have transitioned into long-term holdings, reinforcing the sentiment that many investors view current prices as a buying opportunity rather than a time to liquidate holdings.
Furthermore, the current Bitcoin price remains above the average cost for most active investors, which is often seen as a positive indicator of market strength. This has further encouraged the accumulation trend, as many believe that holding through the current volatility could lead to significant returns once market conditions stabilise or improve. This approach is especially popular among long-term holders who have experienced Bitcoin’s cyclical nature and are betting on its continued adoption and resilience.