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Bitcoin has seen some respite in the past two days with a gain of 4.5% in 24 hours. The first cryptocurrency by market capitalization was trading at $42,947, after rebounding from its lows of around $39,000.
BTC trends to the upside on the hourly chart. Source: BTCUSD Tradingview
Related reading | TA: Bitcoin’s Rebound to $42,000, Why Bitcoin Could Recover to $43.5K
The recent upward price action comes on the heels of the latest Consumer Price Index (CPI) report published in the US; Scale has become one of the most important issues for investors around the world. Used to measure inflation in US dollars, the CPI stood at 7% for December 2021.
The metric scored a percentage lower than investor expectations and was mostly one of the reasons Bitcoin experienced such a rapid recovery. However, it reached its highest level in 40 years, indicating that the problem will remain a priority for financial institutions through 2022.
As seen below, individual inflation data paint a different picture with many sectors hitting double digits in their annual periods. This includes Medicare at 37.3%, transportation at 21%, and energy at 29.3%.
All the misery of inflation in one scheme! Inflation in the United States at 7% is the highest since the 1980s. Monthly price increases are higher than expected. Used cars, food and clothing drive up prices. (Graphic via @MOstwald1) pic.twitter.com/mJOCun6UOK
– Holger Zschaepitz (@Schuldensuehner) Jan 12, 2022
Inflation has caused the US Federal Reserve and Chairman Jerome Powell to hint at tapering and increasing interest rates. For now, inflation fears have subsided, but they may soon return to justify a shift in the financial institution’s monetary policy. According to Yuya Hasegawa, Bitbank analyst:
(…) If the CPI and PPI turn out to be higher than the market expects, they can reignite the fear of inflation and thus, also, justify the first price hike as early as March. According to CME’s FedWatch, nearly 70% of market participants anticipate a rate hike in March, so bitcoin may be able to defend $40k in the event of another selloff, but this is certainly not the time to be optimistic about the future. Short-term .
Bitcoin, more blood in the short term?
Therefore, the analyst believes that between $44,000 and $48,000 will act as important short-term resistance levels. A break above the latter could push Bitcoin to the highest level in its current range, near $50,000, or else the cryptocurrency could revisit the lows where it has been moving for the past weeks.
Data from material indices indicates very little support for Bitcoin below its current levels. More than $12 million in bid requests are stacked in the $39,000 to $40,000 region, with roughly the same amount in bid requests around the $44,000 to $45,000 region.
Bitcoin bid (price in blue) which could act as a support near $40,000. Source: Material Indicators
This illustrates the uncertainty in the market, but with Bitcoin still holding some bullish price action. If inflation measures in the US continue to trend lower or below investor expectations, the number one cryptocurrency could resume its upward trend with more strength in the coming months.
Related reading | President Bukele expects BTC to be at $100,000 in the hope that more countries will adopt it as legal tender
Jan Wüstenfeld, an analyst at CryptoQuant, wrote the following about the CPI and its potential impact on the long-term price of BTC:
(…) If (inflation) continues to decline in the coming months, this will be the perfect excuse for the Fed to reverse its hawkish stance, which will be bullish for Bitcoin.
Source: Jan Wüstenfeld via Twitter