Cryptocurrencies continued to show an unexpected level of resilience on Tuesday as Bitcoin (BTC) bears made another attempt to smash its price lower, only to be soundly rebuffed by bulls, who have the support of heavy inflows into spot BTC ETFs to keep demand high.
A hotter-than-expected Consumer Price Index reading dropped just after the markets opened and briefly stymied asset prices, but investors quickly brushed off the report and concerns about interest rates to bid stocks higher.
While the major indices remain below their recent record highs, the S&P, Dow, and Nasdaq all finished the day higher, up 1.12%, 0.61%, and 1.54%, respectively.
Data provided by TradingView shows that after holding above $72,000 in the early hours on Tuesday, the CPI led to an uptick in volatility for Bitcoin that briefly saw the top crypto touch a new high of $73,040 on Coinbase before sliding to a daily low of $68,615 in the afternoon.
BTC/USD Chart by TradingView
Dip buyers were quick to pounce on the 6% intraday price swing, and their efforts helped push Bitcoin back above $70,830 at the time of writing, a decrease of 1.9% on the 24-hour chart.
Bitcoin seen as a hedge against inflation
While higher-than-anticipated CPI readings and unexpected strength in the jobs market have traditionally taken a toll on crypto prices, the strength of Bitcoin and ongoing inflows into spot BTC ETFs are adding a new level of stability to the cryptocurrency market, which bodes well for the long term outlook for this bull cycle.
“In the past, CPI data and interest rate cuts played a more significant role in crypto price movements, but if there’s a question as to if the anticipation of interest rate cuts is playing a role in the recent bull rally, I don’t think it is at all right now,” said Greg Magadini, Director of Derivatives, in a note shared with Kitco Crypto.
“Crypto is really moving on its own factors,” he added. “The discount rate for interest rates doesn’t really matter. The futures basis in Bitcoin right now is 25% annualized for a leveraged long. This indicates that investors are willing to pay a substantial premium for leveraged long positions, so the traders longing Bitcoin right now don’t really care if the risk-free interest rate is 5% versus 5.25%.”
This outlook was reiterated by Aurelie Barthere, Principal Research Analyst at Nansen.ai, who told Kito Crypto that the higher-than-expected inflation reading should not put an end to Bitcoin’s run higher because even without a Fed rate cut, drivers such as institutional demand will keep propelling the top crypto to new highs.
“In terms of the short-term impact of today’s US CPI release, we do not expect it to end the crypto bull market yet, nor to impact prices significantly in the coming weeks,” Barthere said. “There is too much bullish momentum in crypto (price and newsflow, see latest announcements on BlackRock allocated its own BTC ETF to two of its asset management funds).
“What will probably happen is a repricing of expected Fed rate cuts: right now, future markets have 4 rate cuts priced by December 2024; this should be shaved to 2-3 rate cuts (the FOMC meeting projections will be updated this month and we expect a median of 2-3 rate cuts in FY 2024),” she said. “We do not expect a significant sell-off for crypto as this repricing has happened in the past few months without questioning the bull market (consolidation vs significant sell-off).”
“Interestingly, gold is ‘only’ down 1%, and US 2yr yields up 5bps since the CPI’s disclosure,” she added.
Bill Zielke, Chief Revenue and Chief Marketing Officer at BitPay, said that persistently high inflation is making Bitcoin more attractive to investors who are looking to have the value of their assets keep pace with or exceed the rising cost of living.
“On a macroeconomic level, inflation concerns continue, and with the Fed being extra cautious in cutting rates, investors seeking growth and diversity are adding digital assets to their holdings,” he said. “With several spot bitcoin ETFs’ recent approval, launch, and development, investors are taking crypto seriously again, thanks to institutional participation in the asset class.”
“Bitcoin, in particular, is emerging as a hedge against inflation, and the growing economic uncertainty is driving investors to seek protection in digital assets,” Zielke said. “We’ll continue to see crypto reinsert itself into the conversation as markets search for long-term stability.”
“Another thing to watch is the upcoming halving event in April,” he added. “The Bitcoin halving will further limit the supply of new-minted Bitcoins, making the digital currency scarcer and pushing prices higher historically.”
“The run-up in BTC price doesn’t just have the attention of investors – longtime hodl’ers are also looking for ways to benefit from their gains,” he concluded. “We’re seeing an impact from the current bull run, with interest in crypto spending up more than 25%,”
“The investment landscape is witnessing a profound global shift towards cryptocurrency, particularly Bitcoin, as a viable asset class,” said Matt Ballensweig, Managing Director and Head of Go Network at BitGo. “The emergence of nine new Bitcoin ETFs signals a monumental change in portfolio construction, as institutional investment managers and advisors are now almost forced to consider the impact of adding Bitcoin to a standard 60/40 portfolio.”
“While acknowledging potential pullbacks, the broader trajectory points towards a generational transition in investment strategies, with various avenues available for accessing the market, each carrying distinct considerations,” Ballensweig said.
Mixed day for the altcoin market
It was a mixed day of trading for altcoins, with a majority of tokens in the top 200 recording losses as traders took profits and escaped to the sidelines to wait for the CPI-inspired volatility to die down.
Daily cryptocurrency market performance. Source: Coin360
Amp (AMP) surged 103% to lead the gainers, followed by an increase of 34.9% for Vanar Chain (VANRY), and a gain of 21.8% for Injective (INJ). Celo (CELO), the top gainer on Monday, was the biggest loser today, declining by 9.1%, while OriginTrail (TRAC) lost 8.1%, and Moonbeam (GLMR) fell 6.8%
The overall cryptocurrency market cap now stands at $2.7 trillion, and Bitcoin’s dominance rate is 52%.
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