1. Market Wrap: Bitcoin Weakens as US Inflation Hits 13-Year High
Buyers are snapping at bitcoin whenever it dips to $30,000, but the cryptocurrency’s price response to faster inflation readings is puzzling Wall Street analysts.
Bitcoin was lower for a second day in a row, further decoupling from the stock market after a report showing U.S. consumer prices rose last month at their fastest pace since 2008.
The largest cryptocurrency is seen by many digital-asset investors as a hedge against inflation, and so the price reaction led to some head-scratching among Wall Street analysts. That’s been the case for the past couple months as the U.S. Bureau of Labor’s consumer price index (CPI) accelerated, with the price of bitcoin (BTC, -1.91%) tumbling to about $32,800 now from an all-time high near $65,000 in April.
“Interesting that as CPI inflation has climbed from +1.4% y/y in January to 5.4% in June, bitcoin has essentially been cut in half,” Liz Ann Sonders, chief investment strategist at Charles Schwab, tweeted.
Bitcoin (BTC) $32259, -1.68%
Ether (ETH (-5.44%)) $1919.8, -4.59%
S&P 500: 4369.22, -0.35%
Gold: $1809.1, +0.13%
10-year Treasury yield closed at 1.41%, compared with 1.369% on Monday
Looking at the larger macroeconomic picture puts bitcoin’s price action into perspective: Bitcoin prices quadrupled last year as the U.S. Federal Reserve pumped trillions of freshly printed dollars into financial markets, nearly doubling in one year the amount of money it had created over the prior 107 years.
2. Inflation Is Rampant. Is It Time to Buy Bitcoin?
Bitcoin has shown an increasing tendency to track interest rate hikes, but professional investors still think record-high inflation is fleeting.
Inflation has hit its highest level in 13 years, according to new Consumer Price Index data released today. Year-over-year inflation hit a whopping 5.4%, well above the 2% long-term rate target the U.S. Federal Reserve sees as economically healthy.
Some bitcoin (BTC, -1.96%) investors may take that as a buy signal: Bitcoiners have long argued the digital currency has the potential to act as a hedge against inflation in any single currency. That argument often hinges on bitcoin’s strictly limited supply, but just as important is its global nature, disconnected from any one country’s economy or currency. As bitcoin adoption grows, that case becomes stronger.
But professional investors remain seemingly unperturbed by the inflation spike, suggesting caution even if you fully buy into bitcoin’s anti-inflation thesis.
Before this morning’s report, institutions and other big wheels were in lockstep with Fed Chair Jerome Powell’s prediction that this wave of inflation is transitory. This morning’s CPI surprise doesn’t seem to have changed their minds: Bond yields remained essentially unchanged, with yield on the 10-year Treasury note actually slipping slightly to 1.35%.
The bond market is a gauge of investor sentiment on inflation because high long-term inflation cuts into the returns from bonds, which have maturities ranging from five to 30 years. So when investors expect long-term inflation, bonds sell off, which pushes down the underlying bond’s price. That, in turn, (and this is the neat part) increases the percentage return (yield) for new buyers. That gives counterparties who are short inflation the chance to bet on that expectation, and in the process set a new consensus inflation projection. Markets are very cool sometimes!
3. S&P Dow Jones Launches 5 More Crypto Indexes; One Tracks 240 Coins
It’s the first major expansion of S&P’s crypto benchmarking tools since entering the market in May.
S&P Dow Jones Indices on Tuesday rolled out five new cryptocurrency index products, the first major expansion of its digital assets benchmarking tools since entering the market in May.
Headlining the tranche is a “broad digital market,” or BDM, index that includes over 240 coins, a press release said. “The new subindices also provide different slices and dices of the BDM by market cap so that investors can track different segments of the market,” an S&P spokesperson told us.
It’s not exactly clear from which assets BDM and its subsets build their market “snapshot.”
S&P’s website said the “index is meant to reflect a broad investable universe.” S&P’s crypto data partner Lukka did not immediately respond to CoinDesk. HXRO is the 240th-largest cryptocurrency by market capitalization, according to CoinGecko, though it’s unclear if S&P’s selection criteria is based on size.
4. DeFi Gets Proactive About Policy Thanks to a $20M Grant From the Uniswap Community
“Currently DeFi is not at the table — but on the menu.”
The freshly funded DeFi Education Fund (DEF), a new policy organization supported through Uniswap, turned half of the assets allocated to it by Uniswap governance, 500,000 UNI (-6.26%) (around $10 million) into USDC (-0.03%) via a trade facilitated by Genesis, it announced on Monday.
DEF was created to advocate for policies friendly to decentralized finance (DeFi) globally. Marc Boiron, one of the signatories to the group’s multisig and a member of the group’s steering committee, told CoinDesk that deploying half the funds quickly was part of the plan communicated to UNI holders from the start.
The fund was formed with 1 million UNI (worth a little over $19 million at press time) after receiving support from holders of Uniswap’s UNI governance token. The vote closed on June 29, with 79.7 million UNI voting in favor and 15.0 million voting against. It’s only the third proposal to successfully pass the Uniswap community’s governance process. Many of the supporters of the proposal were very large wallets, though two of the top 10 largest wallets voting on the measure were in opposition.
5. Bitcoin’s Range Play Likely to End With Bullish Breakout
“Intermediate-term momentum has been improving based on the MACD histogram,” one analyst said.
An analyst who predicted the bitcoin (BTC, -1.98%) mid-May price slide says the cryptocurrency’s current range play is likely to be resolved on the higher side.
“The consolidation phase itself is neutral, but we think a breakout is more likely than a breakdown,” Katie Stockton, founder and managing partner of Fairlead Strategies, said in a research note published on Monday. “Intermediate-term momentum has been improving based on the MACD histogram.”
Bitcoin has been trading between $30,000 and $40,000 since late May. The price range has narrowed further in the past two weeks, with bulls unwilling to send prices above $36,000 and sellers refusing to step in below $32,000.
A big move looks overdue and could be bullish, as the weekly chart MACD histogram, an indicator used to gauge trend strength and trend changes, has turned higher, having bottomed out in mid-June.
The consecutive shallow bars below the zero line indicate seller exhaustion.
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July 14, 2021