Why are bitcoin and crypto down today?

Within the last 24 hours, bitcoin and the entire crypto market is witnessing a slight decline, which is making investors wonder about the reasons behind this decline. Bitcoin briefly soared to $31,009 before falling to $30,254 within a few hours. Ether (ETH) soared above $1,900, and then pulled back to $1,868.

CPI data and rate hike expectations

An important piece of the puzzle lies in the most recent Consumer Price Index (CPI) data. Yesterday’s CPI data for June was a positive surprise as headline CPI fell year-on-year (YoY) to 3.0%, less than the expectation of 3.1%. Even more encouraging was the core CPI which fell to 4.8%, beating market expectations of 5.0%.

However, this did not significantly change the market outlook on the upcoming rate hike decision by the Federal Reserve at the end of the month. According to the CME Fedwatch tool, the market still expects a 25 bps hike by the Fed in its next meeting on July 25-26 with a 93% probability. Well-known macro analyst Ted (@tedtalksmacro) is in the minority and believes that another rate hike will not happen. Ted shared The chart below and wrote:

3 million annual core CPI is now trading at October 2021 levels. The trend is the Fed’s friend. It’s hard to see another hike this month.

However, other analysts believe the core personal consumption expenditure price index (PCE) is more important to the Fed. In the most recent release of the FOMC minutes, the PCE is mentioned ten times, compared to three mentions of the CPI. The Fed’s preferred inflation gauge for June will not be released until July 28.

US government selling bitcoin

However, it is important to note that after the positive inflation data, the traditional markets were setting new highs. The S&P500 rose 0.74% yesterday and recorded its highest level since April 2022. Meanwhile, bitcoin still could not cross $31,000 in its sixth attempt.

The reason for this was probably the news that the US government is moving 9,800 BTC linked to the infamous Silk Road market. This news came out soon after the release of CPI and sentiments were hit hard. In the past, there have been reports that the US government is moving in and possibly selling some of its bitcoin, which has always caused serious price drops. Yesterday’s decline can still be considered moderate and an indicator of market strength.

So far only speculations are going on about the plans of the US government. It is known that the US intends to liquidate the seized BTC holdings. The last time this happened was in March. At that point, 9,861 bitcoins were sold. However, the transfer can also be used to simply restructure BTC holdings.

maybe that’s why #bitcoin The rally failed to materialize despite a positive CPI surprise (SPX +0.83%).

— Jake Simmons (@realJakeSimmons) 12 July 2023

BTC stuck in range

In addition, market activity itself is playing an important role. Traders are actively engaging in strategies such as longing at the bottom of the current bitcoin range and shorting at the top. As the analyst aptly put it puts This, “most people are playing the range well, hedging near the highs of the range and flipping longs around the lows of the range.”

This trading behavior creates a dynamic environment where short-term price movements can be influenced by the actions of traders seeking to profit from market volatility. Italics Added:

BTC Aggregate CVD and Delta is still a very derivatives driven market yet lacking spot participation = chop chop. $30.2K + Nice long sweep around the current price and demand between $30K. Take profit or short covering bounce can be seen after some time today.

At press time, BTC was priced at $30,431 and remained comfortable in a trading range between $29,800 and $31,300.

Featured Image from iStock, Chart from Tradingview.com