Bitcoin rebounds from $33K support as US dollar inflation comes back into focus
Bitcoin moved inversely to the dollar at the beginning of this week as traders awaited the June CPI report due Tuesday.
Bitcoin (BTC) prices steadied on Tuesday after closing the previous session at a 3.41% loss, supported by a weakening United States dollar sentiment ahead of a key U.S. inflation report due later on Tuesday.
The spot BTC/USD exchange rate rose by a modest 1.31% to $33,096 after bottoming out on Monday at $32,996 on Coinbase. The CME Bitcoin Futures was up 1.64% from its previous session’s low of $32,600.
Meanwhile, the USD index was down about 0.03% ahead of the London opening bell. The index represents the greenback’s strength against a basket of top foreign currencies.
Inflation data awaited
Bitcoin and the USD moved inversely during a week of key inflation reports and a crucial congressional testimony from Federal Reserve Chairman Jerome Powell.
On Tuesday, the U.S. Consumer Price Index (CPI) expects to post another significant spike in June, highlighting a run-up in inflation as the economy attempts to recover from the coronavirus pandemic slowdown. A Reuters poll of economists noted that the CPI might have increased by 0.5% since May and 4.9% from a year earlier.
Many traders bet on Bitcoin against the prospects of higher inflation, partly due to popular narratives that project the flagship cryptocurrency as a hedge against central bank inflationary policies that hurt fiat currencies’ purchasing power.
In detail, the Federal Reserve has been running a $120-billion monthly asset purchase program since March 2020 while keeping its benchmark lending rate near zero. As a result, the U.S. central bank’s policies have doubled the size of its balance sheet to more than $8 trillion. Meanwhile, the same period has witnessed Bitcoin spiking by up to 1,528% — from $3,858 to almost $65,000.
The cryptocurrency had declined by more than half by the said mid-April peak but sustained its overall bullish bias by relentlessly holding $30,000 as its psychological price floor. The support came extremely handy following the previous two CPI reports showing that inflation jumped to 4.2% in April and 4.9% in May.
“The uptick in the CPI readings is an indication that the economy has not healed completely from the pangs of the pandemic, and the crypto market is trailing the negative inflation figures,” Gustavo De La Torre, director of business development at N.exchange, told Cointelegraph. He added that lower Bitcoin prices combined with a mixed economic outlook would drive more investors to accumulate the cryptocurrency.
“Should the buy-up intensify, a price push up to $40,000 for Bitcoin may be seen in the short term,” added De La Torre.
Additionally, Konstantin Anissimov, executive director of CEX.IO, warned about the Fed’s potential hawkish reaction to further inflation hikes, noting that it might prompt the central bank to unwind its bond-buying program and cut interest rates earlier than expected.
“As things stand, the Federal Reserve has increased the size of its balance sheet from early 2020 to more than $8 trillion — a substantial rise,” Anissimov said, adding that lower crypto prices would keep serving as the right hedge against inflationary fears for the time being. He further noted:
“Both Bitcoin and Ethereum, with the renewed buy-ups, are likely to retest new price levels at $45,000 and $3,000, respectively.”
Bitcoin enters accumulation
On-chain indicators continued to point toward an ongoing Bitcoin accumulation. As of the last week’s close, as per Glassnode’s data, entities with little history of selling continued piling up Bitcoin from weaker hands, while net exchange flows dipped into negative territory, suggesting that traders have been withdrawing their Bitcoin from trading platforms to hold.
“Retail has been buying heavily for weeks now, but we finally got the uptick in whales that we were waiting for,” noted Will Clemente III, an independent market analyst.
“There were 17 new whales birthed on the blockchain this week, while at the same time the overall holdings of whales increase up by 65,429 BTC.”
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