Bitcoin keeps above $40k ahead of US inflation data

The world’s largest crypto is looking for a more solid footing after suffering its biggest one-day drop since March 2023.

Bitcoin fell by almost 6% yesterday (Monday, December 11th), though found support around the psychologically-important $40,000 line, as well as around its 21-day simple moving average (SMA).

At the time of writing however, prices are attempting a recovery.

Why has Bitcoin fallen recently?

Bitcoin marked its worst 3-day losing streak since August, falling about 7.6% between Saturday through Monday.

There are several reasons being bandied about for triggering this sharp drop:

• PROFIT TAKING: Investors and traders may have sought to book in profits, given that Bitcoin had already surged by more than 160% so far this year (prior to this past weekend).
   
• TECHNICAL PULLBACK: Earlier this month, Bitcoin’s 14-day relative strength index (RSI) had crossed above the 70 threshold which marks “overbought” conditions. Hence, prices had been ripe for a technical pullback, after having climbed to its highest levels since April 2022.
   
• LOWERED BETS FOR 2024 FED RATE CUTS: Markets lowered some of their expectations for how soon the Federal Reserve will lower US interest rates. That may have slightly soured appetite for riskier assets, including cryptocurrencies.

What’s next?

Although Bitcoin has been less reactive to macroeconomic data, today’s release of the US November inflation report could influence overall market sentiment.

Here are the current market forecasts for the soon-to-be-released US consumer price index (CPI), which measures overall inflation:

• Headline CPI month-on-month (November 2023 vs. October 2023): 0%
   
• Core CPI (excluding food and energy prices) month-on-month: 0.3%
  (slightly higher than October’s 0.2% month-on-month rise)
   
• Headline CPI year-on-year (November 2023 vs. November 2022): 3.1%
  (slightly lower than October’s 3.2% year-on-year rise)
   
• Core CPI year-on-year: 4%
  (unchanged from October’s 4% year-on-year rise)

If the official CPI numbers come in higher than the above-listed forecasts, that could force markets to further pare down their bets for Fed rate cuts in 2024.

Such a scenario may prompt more declines for Bitcoin.

However, lower-than-expected CPI figures may reinvigorate risk-taking appetite in the markets that may help pare some of Bitcoin’s recent losses.

Still ahead: Fed decision and Bitcoin ETF hopes

Markets will be awaiting the latest policy signals out of the Federal Reserve’s final policy meeting of the year, due to conclude on Wednesday (December 13th).

New clues about what the Fed will do with US interest rates in 2024 hold great potential to shake prices across asset classes.

Looking even further out, Bitcoin bulls (those hoping prices will move higher) are still optimistic that a first-ever Bitcoin ETF (exchange-traded fund) could be just weeks away.

A Bitcoin ETF may herald greater access to the underlying cryptocurrency to retail traders and investors.

Bloomberg Intelligence had recently forecasted a 90% chance that the Securities and Exchange Commission (SEC) will approve that first Bitcoin ETF by January 10th, 2024.

As long as such enthusiasm holds, that should sustain the impulse to push Bitcoin prices even higher, or at least offer a strong supportive element for the world’s largest crypto in the interim.