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Expert warns higher inflation could whip BTC price to $30K

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According to Alex Krüger, founder of Aike Capital, a New York-based asset management firm, Bitcoin (BTC) might fall to as low as $30,000 if the US inflation data due out on Wednesday comes in higher than expected.

The closely watched consumer price index (CPI) is expected to grow 7.1% year-over-year and 0.4% month-over-month, according to market expectations. This increase demonstrates why Federal Reserve officials in the United States have been pushing for a speedier normalisation of monetary policy than had been expected previously.

U.S. headline inflation. Source: Bureau of Labor Statistics, Bloomberg

According to data issued on Jan. 7, a stabilising labour market, including rising income and declining unemployment claims, is helping them prepare.

“Crypto assets are at the far end of the risk curve,” Krüger tweeted on Sunday, adding that because they had profited from the Fed’s “extraordinarily slack monetary policy,” it should suffice to say that they would lose if the policy tightened unexpectedly.

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Since March 2020, the Federal Reserve has been purchasing $80 billion in government bonds and $40 billion in mortgage-backed securities each month. Meanwhile, the Federal Reserve of the United States has held its key interest rates near zero, lowering the cost of borrowing for individuals and businesses.

BTC/USD vs. Fed balance sheet. Source: TradingView

However, a lax monetary policy has had the unintended consequence of rising inflation, which hit 6.8% in November 2021, the highest level in nearly four decades.

As a result, the Fed has shifted its posture from expecting no rate hikes in 2022 to discussing three hikes in tandem. With their balance sheet normalisation.

“It’s more drastic than we expected. And the Fed’s turn to a more hawkish attitude has been a surprise”, BNY Mellon Wealth Management’s Leo Grohowski told CNBC.

“Most market participants expected higher rates and less accommodative monetary policy. But the fed funds market-implied only a 63% possibility of an increase in March on New Year’s Eve.”

Mini bear market?

According to Bloomberg Intelligence’s senior commodity strategist Mike McGlone, $40,000 is a significant support level in the Bitcoin market. Furthermore, he predicted that as the world grows more digital and accepts BTC as collateral, the cryptocurrency would finally emerge from its negative period.

BTC/USD daily price chart featuring $40K-level’s history as support. Source: TradingView

The announcement came as Bitcoin’s slide from its record high of $69,000 on November 8 has already surpassed 40%. According to Eric Ervin, CEO of Blockforce Capital, the dip has mostly washed out recent investors. Leaving long-term investors in the market.

The start of a “little bear market” is possible, according to the CEO. Who added that such corrections are “totally normal” for crypto investors.

Krüger also pointed out that Bitcoin has already fallen too far from its all-time highs. And that it is already technically oversold. So, if the CPI number comes in lower than expected, traders may expect the BTC price to climb. And trend for a while.

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