Bitcoin Traders: Crucial Moves Before Tonight's CPI and FOMC

👇1-12) Tonight’s double macro-event of CPI and FOMC appears to be a coin flip after last week’s higher-than-expected US employment data, which caused most Wall Street banks to push out their first rate cut expectations towards September, if not later. Although the interest rate-sensitive Nasdaq has continued to make new all-time highs, Bitcoin has declined from 71,000 to 67,000.

👇2-12) Bitcoin could break to new highs if prices climbed above 72,000 (71,946). However, we have warned that over-positioning in Ethereum (leveraged) futures could cause unwinding with negative implications for Bitcoin (here) and preferred Bitcoin over Ethereum (last week BTC -5% vs. ETH -9%). Our report on Monday showed the chart below, as Bitcoin traded dangerously close to the uptrend line (purple).

 Bitcoin broke the uptrend (purple)

👇3-12) Instead of repricing Wall Street’s interest rate expectations, it appears more likely that SEC Chair Gensler’s comments that Ethereum ETF S-1 approvals would take time started the unwinding of leveraged long positions. The enthusiasm around an Ethereum ETF has materially declined, and the ETH/BTC ratio continues to fall within its well-defined downtrend.

Excessive Position building ($bn, RHS, purple) in Ethereum (white, LHS)

👇4-12) Bitcoin traded dangerously close to liquidation levels yesterday morning, and once triggered, a cascading decline began. The chart (above) also shows the three levels to watch for (1) 71,946, with Bitcoin likely targeting 83,000 if a breakout is sustained. (2) 66,357 is the mid-range, below a new downtrend could start, and (3) 62,000 is the bottom of the range that would need to hold unless a top might be in place.

👇5-12) Our inflation model was correct in expecting a lower number last month, but it appears to be a very close call this time. Bitcoin should still rally if CPI remains at 3.4%, as prices have corrected into this number. But Bitcoin needs 3.3% (or lower) to target again the top of the range for a breakout. One of the following two CPI data releases will likely see lower CPI; Bitcoin will likely rally and make new all-time highs.

👇6-12) Bitcoin has been up by +0.6% on average during CPI days, with only four out of the last ten CPI days being positive. One week later, Bitcoin has declined by -2.4 %, on average, with six out of the past ten being up. The three CPI data release events in January, March, and April 2024 saw Bitcoin decline from -11% to -13% following the data announcement. CPI was higher in all three. Hence, CPI >3.4% would be bearish.

👇7-12) Bitcoin tends to fall on FOMC days, with average returns of -0.3% and only three out of the last ten FOMC days being positive. One week after the FOMC meeting, Bitcoin has been up +2.3%, on average, with six out of the previous ten meetings up. However, on average, the last five FOMC meetings saw Bitcoin rally +3.3%, with all five seeing positive price returns one week later. This would suggest buying the dip tonight.

👇8-12) Fed Chair Powell sent a dovish message at the two previous FOMC meetings, which helped Bitcoin in both cases. But with the Nasdaq making new all-time highs and the strengths in the US labor market, a dovish message might not be provided tonight. However, it is an election year, and the Fed spreads the feel-good factor. Fed members could indicate fewer rate cuts, which the market could interpret as hawkish, but Powell is generally perceived as dovish recently

👇9-12) Bitcoin Spot ETF inflows have paused following the more robust employment data after 20 consecutive days of positive inflows. Stablecoin inflows have stopped, and perpetual futures leverage is declining. The marginal change in money inflow is negative for crypto.

👇10-12) This might be temporary, as a lower CPI would likely bring back leverage. The critical point is that Bitcoin sold off recently, increasing the odds that we could rally tonight - even if we would classify this setup as 6 out of 10 (instead of an all-clear bullish 10 out of 10).

👇11-12) Our reports have been bullish on Bitcoin and bearish on Ethereum. With the correction during the last few days (-5% for Bitcoin and -9% for Ethereum), we would close the short Ethereum leg (temporarily) and stay outright bullish Bitcoin with a stop loss of 66,100 (last 67,250).

👇12-12) If Bitcoin sells off after the CPI or FOMC, we would need to reevaluate and be patient, but the odds would slightly favor entering tonight from the bullish side. However, we still expect Ethereum to underperform Bitcoin in the foreseeable future, and leveraged futures positions in Ethereum remain elevated.

Ethereum / Bitcoin Ratio - well-defined downtrend