Markets
Cryptocurrency liquidity set to increase after CPI falls short of expectations, says Bitfinex analyst
Main conclusions
- Lower-than-expected CPI data could boost crypto market liquidity and risk appetite.
- Bitcoin faces potential volatility as it struggles to maintain its position above $58,000.
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Below-expected U.S. Consumer Price Index (CPI) inflation numbers today could boost liquidity for the stock and cryptocurrency markets, according to Jag Kooner, Head of Derivatives at Bitfinex. However, concerns over the supply of Bitcoin (BTC) waiting to be dumped into the market could still keep investors on the sidelines.
The CPI came in at 3%, below expectations of 3.1%, while the Core CPI, which excludes food and energy, also fell below expectations at 3.4%. Kooner points out that this signals a more significant slowdown in inflation, as it is the third consecutive monthly reduction.
“This could reinforce market expectations of a rate cut in September (where Fed Fund futures currently put the probability at 70%), boosting both equities and cryptocurrencies by increasing liquidity and risk appetite,” he explained.
Notably, this means that the next Fed meeting, scheduled to take place between July 30 and 31, will not bring the long-awaited rate cut that investors are hoping for. Consequently, volatility could increase as Bitcoin fight to stay above $58,000, which is its 200-day exponential moving average (200 EMA). If BTC fails to hold convincingly, it could chase some lower price levels.
However, Kooner highlights the possibility of favorable CPI numbers prompting Bitcoin to move along with risk assets as this would support the narrative of slowing inflation and a possible rate cut.
“Investors will closely monitor Fed communications and market reactions to today’s CPI release and upcoming Fed meetings to gauge BTC’s alignment with equities. However, we believe a single inflation print would not dispel concerns about Bitcoin’s oversupply, which would take some more time for the market to fully price in.”
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