Bitcoin Breakout Halts as U.S. Inflation Data Looms

• Bitcoin’s failed breakout likely represents temporary nervousness ahead of the U.S. CPI release, and not an outright bearish trend reversal, 10x Research’s Markus Thielen said.
• Markets have pared back Fed rate cuts ahead of the CPI release.
• A soft inflation print could put the June rate cut back on the table, injecting upside volatility in risk assets, including cryptocurrencies.

Bitcoin BTC$88,336.23 dropped 3% in the past 24 hours, invalidating a bullish breakout, ahead of the release of U.S. inflation data that could dictate when the Federal Reserve (Fed) starts cutting interest rates.

The leading cryptocurrency by market value slipped back into a triangular consolidation pattern identified by trendlines connecting March 15 and March 27 highs and March 20 and April 3 lows. The symmetrical triangle consolidation had ended with a bullish breakout early this week, opening doors for a rally to $80,000.

Failed breakouts often result in short-term traders closing or reversing bullish bets in anticipation of a steeper price decline. Still, Markus Thielen, founder of 10x Research, cautions investors against reading too much into Bitcoin’s bull failure.

“Bitcoin’s failed breakout likely represents nervousness ahead of the U.S. CPI release. I would not write it off yet,” Thielen told CoinDesk in a Telegram chat.

Thielen added that Wall Street’s tech-heavy index, Nasdaq, rose Tuesday, offering positive cues to bitcoin and other risk assets. In other words, bitcoin’s dip could be short-lived. The cryptocurrency closely follows trends in the Nasdaq and the Nasdaq-to-S&P 500 ratio.

The Bureau of Labor Statistics is set to release March 2024 CPI data on Wednesday at 08:30 ET (12:30 UTC).

The consensus is that the consumer price index, a measure of cost of living, has increased by 3.5% since March 2023, accelerating from February’s 3.2% annual inflation rate, according to economists polled by the Wall Street Journal. The monthly pace is forecast to have eased to 0.3% from February’s 0.4% rate.

Similarly, the monthly pace in core inflation, which strips out the volatile food and energy component, is forecast to have slowed to 0.3% in March, following February’s 0.4% gain, equating to a 12-month decline to 3.7% from 3.8%.

A resilient economy and labor market conditions have already forced markets to pare bets on the timing of the first Fed rate cut and the number of rate cuts this year. On Monday, the Fed funds futures showed expectations for 60 basis points of rate cuts this year, down significantly from 150 basis points in early January. The probability of the first 25 bps rate cut in June stood below 50%, down from nearly 60% before Friday’s upbeat nonfarm payrolls report.

Thus, a hotter-than-expected CPI release may not inject a significant downside volatility in bitcoin. On the contrary, a soft print could put the June rate cut back on the table, reviving bullish sentiment in the leading cryptocurrency.

“The market is already walking back expectations of rate cuts – the first cut coming in June is now down to a 50% probability, according to CME pricing. In other words, there could be some volatility, but it feels like the market is already more bearish on the inflation outlook,” Noelle Acheson, author of the popular Crypto Is Macro Now newsletter, said in Tuesday’s edition.

“Inflation unexpectedly dropping would most likely have a bigger impact on assets, including crypto, as it would signal that maybe the Fed does have an excuse to cut in June after all,” Acheson added.