Bitcoin (BTC): the fundamental key is inflation in the United States

The financial markets got off to a flying start in 2023 with an astonishing positive performance on shares in the most offensive sectors on the stock market. As for the crypto market, it offered a small rebound, in a reduced volume, however. The risk now is that all these movements will be reversed by disappointment in the inflation figures in the United States.

Bitcoin, the fundamental issue of inflation figures in the United States

The equity markets have recorded an astonishing bullish performance since the beginning of the year, in particular the major European stock indices which have almost returned to contact with their historical peaks. Alongside this rise in equities in the most cyclical sectors, bond interest rates have stabilized and the US dollar is now down more than 10% on the floating exchange market since last October.

In the world before the FTX affair, all of these inter-asset class stock movements would have caused the price of the crypto market to rise sharply; but the latter is still largely hampered by the crisis of confidence vis-à-vis the major crypto intermediaries, as well as by its fall of more than 70% since its historic peak in November 2021.

The rise in risky assets at the start of 2023 was forged on the conviction of investors that the process of disinflation is well underway. The inflation rate in the United States has gone from 9% to 7.1% in the space of three months and the consensus for this Thursday, January 12 stands at 6.5%. It is precisely here that there is a market risk because the consensus is very optimistic. The risk for the equity market and the price of bitcoin is to be taken from the back by inflation, which would slow down much less than expected.

This ongoing disinflation is fueling hopes that the Federal Reserve of the United States (FED) will limit itself to a rate of 5% for its Terminal rate, to then carry out its famous “pivot” during the first quarter of 2023. But A rebound in the price regime would upset this fundamental narrative and represent a major market risk for high beta assets on the stock market.

The answer, during the publication of the US CPI this Thursday, January 12 at 2:30 p.m.

Chart showing the evolution of the components of the annual inflation rate in the United States

In terms of technical analysis of the bitcoin price, here is a reminder of the dominant graphic factors of the moment:

  • An uptrend line that joins all the most salient lows of the weekly time horizon for the past 5 years;
  • The price of $16,000 represents a 50% retracement of the entire rise since the low point of the health crisis;
  • The price of $12,000 that the doxa is impatiently awaiting (beware of the consensus, sometimes it is taken the wrong way);
  • The resistance of $20,000 must be exceeded to return bullish.

A chart that exposes the weekly closing price of bitcoin, juxtaposes its 7-day realized volatility

The trend of the American dollar will act by correlation on Bitcoin at the beginning of the year 2023

I draw your attention to the level of support on which the American dollar returned on the Forex. The most favorable scenario for the crypto market would be for the US dollar to break this support, at least not to offer a strong bullish bounce, due to the inverse correlation with the crypto market.

A chart that exposes Japanese candles in weekly US Dollar (DXY) data against a basket of major Forex currencies

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