Crypto Catalyst Needed for Relief Rally

by Alex Benfield
By Alex Benfield

The June update for the Consumer Price Index was released today, hitting 9.1% — the highest level in America since 1981.

Hopes of the Federal Reserve slowing down on raising rates this month are slim, and a 75 or 100 basis-point hike is pretty likely. It looks like the U.S. is on track for a recession this year.

Call me a pessimist, but I don't think this inflation problem is going away anytime soon. Prices at the pump are still far higher than a year ago, along with grocery costs. We'll soon find out how much longer American citizens can stomach these hefty price tags as demand goes down.

Thankfully, there's a silver lining to this situation: Many analysts believe that the worst is behind us, with June numbers representing the peak of inflation as showcased by the recent decrease in fuel and oil prices.

In addition, it looks like the stock market has already shrugged off the news of this high inflation. The markets seem to have already factored in higher inflation for the time being, so it's possible that they'll only react to inflation if the CPI prints are lower than expected.

To demonstrate this point, right after the CPI data was released, neither the stock market or crypto suffered too much. While the S&P 500 dropped over 1% early in today's trading, it has since returned to over 3,800.

The crypto market also seemed prepared for the worst. Even though crypto has been affected by inflation and the increased cost of living — with retail buyers being wiped out from the crypto market over the last few months — Bitcoin (BTC, Tech/Adoption Rating "A-") is still holding on. Despite falling to $19,000 today after the inflation report, BTC it's slowly but surely climbing its way back up after the initial drop.

If Bitcoin can hold above its June 18 low over the course of this week, it's possible that the worst could be behind us, and the crypto market is finally ready for the relief rally that many of us have been waiting for.

And if it does and takes BTC above $24,000, it has the potential to climb to $30,000 or higher.

Please note that if this rally does occur soon, we'll be treating it as nothing but a short-term rally. The macro backdrop must change before any sustained growth can happen in the crypto market.

In the meantime, we'll be closely monitoring the $24,000 level on the Bitcoin chart to confirm that June 18 low.

Here's BTC in U.S. dollar terms via Coinbase (COIN):

 

Like Bitcoin, Ethereum (ETH, Tech/Adoption Grade "A") has also fallen below its moving average this week but continues to hold above $1,000. We're still watching for ETH to climb above $1,250 to confirm its June 18 low. On the downside, we're keeping our eyes set on a close below $990 which would indicate a move lower.

The good news is the upcoming Ethereum Merge scheduled for later this summer could be the catalyst needed to send ETH higher and out of its current range. My colleague Beth Canova wrote more about this highly anticipated event yesterday.

Here's ETH in U.S. dollar terms via Coinbase:

 

Notable News, Notes and Tweets

What's Next

This recent stalemate between the bulls and the bears is pretty unusual: It indicates that the bears are exhausted and the market is oversold … but there are no buyers ready to step in and push prices in favor of the bulls.

And likely buyers won't be ready until they see prices sent higher by some sort of catalyst. This market has been stagnant for too long, and bigger systemic changes to the macro landscape are necessary to push prices one way or the other.

Whether that be a more dovish Fed, lower inflation numbers, a rally in equity markets or favorable regulation, some type of action is needed. We just need to wait and find out what it is.

Keep looking to your Weiss Crypto Daily issues for the latest updates on what those catalysts may be. And check out our Twitter page for even more timely content between issues.

Best,

Alex

About the Editor

Alex has been actively researching cryptocurrencies since 2017 with a primary focus on helping to create crypto trading strategies. He contributes research and reports to two Weiss crypto publications.

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