Bitcoin’s Rally Is Back On. The Reason Why Means Tuesday’s CPI Data Are a Big Risk.

The past few months have been a rollercoaster ride for cryptocurrencies, particularly for Bitcoin. After reaching an all-time high above $64,000 in mid-April, Bitcoin plummeted to below $30,000 by the end of June. However, the rally in cryptocurrencies is back on, with Bitcoin surging over 10% in the past 24 hours to above $24,300. The key reason behind this sudden surge suggests that Tuesday’s CPI data are a big risk for the market.

Bitcoin’s Recent Performance

Bitcoin’s rally began in January when its price jumped from around $16,500 to above $25,000. However, the climb higher stagnated in March, and Bitcoin fell below the $20,000 level last week amid worries over crypto banks and the regulatory picture. Despite these concerns, Bitcoin has jumped higher in the face of banking woes, primarily due to its role as capital preservation during mainstream financial woes.

The Role of Correlation between Digital Assets and Equities

Both cryptos and stocks are closely related to the macroeconomic backdrop of rising interest rates. The crisis at U.S. banks has prompted soul-searching for expectations of future monetary policy. In a week, markets have gone from expecting the Federal Reserve to step up to a larger, 50 basis-point rate hike this month to pricing in a good chance that the central bank will keep rates unchanged due to bank woes.

That is a major tailwind for cryptos, which are even more sensitive to rates than the stalwart stocks of the Dow and S&P 500. The tech stock-heavy Nasdaq Composite, which is even more closely linked to Bitcoin, was the only one of the three major indexes to see gains on Monday—driven by the same force of shifting macro expectations.

Complex Dynamics in Crypto Markets

There are complex dynamics in crypto markets. For example, recent banking woes at Silvergate Capital and Signature Bank, the most influential U.S. bankers to the crypto industry, have created headwinds that bode ill for market liquidity and sentiment for digital assets among regulators. Among banking concerns at Silicon Valley Bank, traders are also facing profound fears over how deposits at that lender could threaten the viability of a key stablecoin.

Why Tuesday’s CPI Data is a Big Risk?

The main reason behind the sudden surge in Bitcoin and other cryptocurrencies suggests that key economic data due Tuesday is a big risk. For example, the Consumer Price Index (CPI) data are expected to show an increase in inflation, which could prompt the Federal Reserve to step up its rate-hike schedule earlier than expected. This, in turn, could impact the prices of both cryptos and equities, creating further uncertainty in the markets.

Related Facts

• Bitcoin’s sudden surge suggests that investors could turn to cryptocurrencies as safe-haven assets in the face of macroeconomic uncertainty.
• Bitcoin’s rally is also driven by institutional investors increasingly investing in cryptocurrencies as a hedge against inflation and currency devaluation.
• While Bitcoin’s surge is impressive, it is worth noting that it is still down over 50% from its all-time high of $64,000 in mid-April.

Key Takeaway

The sudden surge in Bitcoin and other cryptocurrencies is driven by the correlation between digital assets and equities, particularly due to their sensitivity to the macroeconomic backdrop of rising interest rates. However, complex dynamics in crypto markets and key economic data due Tuesday pose a big risk to the market. As a result, the future performance of Bitcoin and other cryptocurrencies remains uncertain, and investors should exercise caution when investing in these volatile assets.

Conclusion

The rally in cryptocurrencies, particularly Bitcoin, is back on, with digital assets surging despite widespread concerns across financial markets in recent days. While factors such as bank woes and regulatory uncertainty have created headwinds, the correlation between digital assets and equities drives the surge. However, Tuesday’s CPI data pose a big risk to the market, and investors should exercise caution when investing in these volatile assets in uncertain macroeconomic conditions.