The Bigger Picture: Crypto Through The Macro Lens
The crypto market is being crushed by macroeconomic factors as large cryptocurrencies continue pushing into previous support levels. Despite today’s red trading session, these assets continue to trade in a tight range and a low-volatility environment.
A report from Arcane Research claims that the upcoming Consumer Price Index (CPI) print, to be published this Thursday, could change the current status quo. The research first expects the metric to 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). CPI is the benchmark for inflation in U.S. dollars and has been the dominant factor behind the shift in monetary policy from the financial institution.
At the moment, the CPI print for September 2022 could provide a deeper insight into the Fed’s rationale and its future decisions. As Arcane Research noted, the August CPI print was higher than the market expected.
As a result, Bitcoin and the crypto market trended lower and were rejected from key resistance levels. In the next CPI, print is higher than expected, the cryptocurrency could revisit its yearly lows at $17,600. The research firm noted:
The year-over-year forecast for the forthcoming CPI release on Thursday at 14:30 CET is estimated to be 8.1% with a month-over-month growth in CPI of 0.2% and an MoM growth in core CPI of 0.5%.
Crypto Market Is All About Macro
As investors and institutions turn their attention away from bullish crypto events, like the Ethereum “Merge”, the correlation between digital and traditional assets increases. In the past two months, crypto has been moving in tandem with major traditional equities.
As seen below, Bitcoin was able to outperform one of these two indexes, the Nasdaq 100, but the S&P 500 remained and showed the best performance. However, crypto remains relatively strong holding off from key support, BTC has been able to hover around its 2017 all-time high.
In the meantime, since key macroeconomic events in September, the traditional and digital asset classes keep on increasing their correlation. On the latter, Arcane Research noted:
Since the last CPI release, BTC has slightly outperformed Nasdaq while underperforming S&P 500 slightly. However, on a relative strength basis, BTC has held off strongly lately. BTC has recovered from its Sept 21st FOMC.
Additional data provided by the trading desk QCP Capital coincides with the increase in correlation between digital assets and traditional markets. This status quo will remain as long as there is not a new narrative in crypto, the firm argues.
Market participants are betting on a potential Fed pivot from their current monetary policy. The financial institution has begun receiving pressure from international bodies, and major hedge funds, but the market is not pricing in this possibility as something likely in the short term.
4/ We think that as long as labour demand remains robust (as shown by last week’s upside surprise in NFP) and CPI prints high, Fed will continue to keep financial conditions tight, with no pivot in sight.— QCP Capital (@QCPCapital) October 11, 2022