Bitcoin (BTC) is under pressure as the market anticipates significant events that could impact its price. The U.S. Consumer Price Index (CPI) report and the Federal Reserve meeting are set to provide critical insights into inflation and monetary policy. Here's what to watch for and how these events could affect Bitcoin.
Quick Take
-
Core Inflation: Expected slight decrease to 3.5% from 3.6%. This slight reduction is anticipated due to a more normalized month-over-month increase of 0.2%, down from the previous 0.3%.
-
Housing Rent: Anticipated decline in rent prices could influence the Federal Reserve's decisions. Lower rent growth, especially in Owners' Equivalent Rent, could contribute to a decrease in core inflation, making a stronger case for potential rate cuts by the Fed.
-
CPI Report and Fed Meeting: The CPI report will be released hours before the Federal Reserve's meeting, setting the stage for market reactions. Analysts expect the CPI to show a 0.1% increase in May, maintaining an annual inflation rate of 3.4%.
-
Bitcoin Price Behavior: Historical patterns show that Bitcoin often experiences price pullbacks before Fed meetings, only to resume its uptrend post-event. Recently, Bitcoin dropped over 5% to around $67,350, reflecting market caution ahead of these key economic indicators.
-
Exchange Withdrawals: Significant BTC withdrawals from Coinbase, with the total BTC balance on Coinbase Pro decreasing by 14,420 BTC ($972 million) within 24 hours.
Core Inflation and Housing Rent
Investment banks predict a slight decrease in core inflation, excluding food and energy, to 3.5% from 3.6% in April. A decline in housing rent, a major component of core CPI, is expected to ease inflation pressures. RBC economists suggest that a slower increase in core services ex-rent measure, closely watched by the Fed, could boost hopes for a rate cut.
ING economists also foresee a reduction in Owners' Equivalent Rent, which holds a 40% weight in the core CPI basket. Easing shelter price pressures could support Fed rate cut expectations, potentially weakening the dollar and boosting risk assets like Bitcoin.
CPI Report and Fed Meeting
Wednesday will be pivotal as the Labor Department releases the CPI report just hours before the Federal Reserve's meeting. The CPI is expected to show a 0.1% increase in May, maintaining the annual inflation rate at 3.4%. The core CPI is forecasted to rise by 0.3%, matching April's pace.
The Fed is expected to keep the benchmark borrowing cost unchanged between 5.25% and 5.5% and publish the interest rate dot plot chart. The CPI data will influence the dot plot projections and Fed Chair Jerome Powell's post-meeting statement.
Potential Scenarios
-
Lower-than-Expected Core CPI:
-
If the core CPI comes in lower than expected, it could strengthen the case for a Fed rate cut, leading to a weaker dollar.
-
A weaker dollar typically supports a rally in risk assets, including Bitcoin.
-
Higher-than-Expected Core CPI:
-
A core CPI above 0.4% month-over-month could bolster the dollar, putting additional pressure on Bitcoin.
-
Such a scenario would dampen expectations for rate cuts, likely impacting Bitcoin negatively.
Bitcoin's Historical Behavior Around Fed Decisions
BTC/USDT price chart | Source: KuCoin
Bitcoin has historically experienced price pullbacks leading up to Fed meetings, only to resume its uptrend after the event. As BTC traded near $67,350 recently, it had lost over 5% since Friday. The dollar index also rose by 1% to 105.20 during this period.
According to data from Cointelegraph Markets Pro and TradingView, BTC's price action has steadied as markets brace for the CPI report and Fed meeting. However, Bitcoin's price fell to $66,000 the day before, leading to long liquidations totaling over $50 million.
Market Reactions and Expert Insights
Traders have noted Bitcoin's weak price behavior ahead of these key events. Popular trader Follis pointed out that BTC has been trading in a range for three months, and some analysts predict further downside if market dynamics do not change.
Rekt Capital, a well-known trader and analyst, highlighted that Bitcoin was unable to break out early in the post-halving period, as historical trends suggested. Liquidity is building around $65,700 to the downside, with $67,700 forming a key resistance level.
Exchange Withdrawals and Market Sentiment
On-chain data captured ongoing exchange withdrawals, particularly from Coinbase. The total BTC balance on Coinbase Pro decreased by 14,420 BTC ($972 million) in 24 hours, contributing to the lowest overall exchange balances in seven years. Glassnode reported a net transfer volume of 17,967 BTC ($1.21 billion) from exchanges on June 11.
U.S. Spot Bitcoin ETFs Witnessed net outflows of $200 million
U.S. spot Bitcoin exchange-traded funds (ETFs) experienced net outflows of $200 million on Tuesday, following a record streak of net inflows. Grayscale's GBTC witnessed the largest net outflows, totaling $121 million, while BlackRock's IBIT recorded zero flows on the same day.
Markets are now anticipating key economic indicators from the U.S., with the Federal Open Market Committee (FOMC) meeting results and CPI data set to influence Bitcoin's price.
Conclusion
The upcoming U.S. CPI report and Fed meeting are crucial events that could significantly impact Bitcoin. A lower-than-expected core CPI could strengthen the case for a Fed rate cut, potentially boosting Bitcoin. Conversely, a higher-than-expected core CPI could bolster the dollar and put pressure on Bitcoin.
As Bitcoin navigates these macroeconomic events, traders and investors should stay vigilant and monitor key levels and market dynamics. The ongoing exchange withdrawals and historical price patterns suggest a complex interplay between economic indicators and Bitcoin's price trajectory.
