Bitcoin Recovery Could Be Short-Lived with US Inflation Print on Horizon

Talking Points:

• Bitcoin’s recent recovery could be on its last legs as US inflation data shifts into investors’ focus.

• A hawkish repricing of Fed Funds futures would likely make it incredibly difficult for the anti-fiat asset to sustain recent gains.

The price of the hugely popular cryptocurrency Bitcoin has recovered robustly over the last two months, after the anti-fiat asset plunged below its 200-day moving average for the first time since March of 2020 at the beginning of June. The primary driver of this recovery appears to be the increasing chance of a recession occurring in the US in the coming months, which has seen yields on long-term US 10-year Treasuries dip back below 3% and to the lowest levels since the first quarter of 2022. Generally, Bitcoin displays an inverse relationship with long-term rates of return as it is a non-yielding asset. However, this dynamic may prove short-lived as the Federal Reserve insists that it will continue to hike rates aggressively to combat the most significant inflationary pressures in four decades.

Bitcoin Inverse Relationship with US 10-year Treasury Yields

Indeed, President of the San Francisco Federal Reserve, Mary Daly, has signalled that a less-aggressive 50-basis point rate increase is hardly a given at the central bank’s next meeting in September and reiterated that policymakers are “far from done yet” in bringing down inflation. Daly stated in recent comments that “right now, I think the most important thing is that inflation is too high [and] Americans are losing ground every day, so the focus has to be on bringing inflation down”. These comments have been echoed by several of Daly’s colleagues and seem to be an attempt from US policymakers to jawbone the recent dovish pricing from investors following the Fed’s last meeting. Just a week ago the market was pricing in a 71% chance that the Fed would hike rates by 50-basis points in September. This has since shifted significantly more hawkish, with Fed Fund futures now implying a 68.5% probability that a 75-basis point hike will occur in September. Upcoming inflation data on could intensify this repricing and make it increasingly difficult for Bitcoin to sustain its recent gains in the short-term.

Bitcoin Price Daily Chart – 100-Day Moving Average Slightly Out of Reach

The technical outlook for Bitcoin remains bearish as prices track comfortably below the 100- and 200-day moving averages.

With prices struggling to break convincingly back above the 50% Fibonacci retracement level, and the RSI continuing to track below 60, the path of least resistance appears skewed to the downside.

A daily close back below the trend-defining 55-day EMA could signal the end of Bitcoin’s tentative recovery and precipitate a slide back to psychological support at $20,000.

On the other hand, gaining a firm foothold above the 50% Fibonacci may intensify near-term buying pressure and bring the May low (26591) into play.

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