The crypto market is entering a week of high tension. On Wednesday August 12, the United States will publish its July inflation. The consensus expects an annual CPI of 3.4%, compared to 3.5% previously. A surprise of a few tenths could be enough to shake bitcoin, Ethereum and risky assets by suddenly changing expectations around the Fed.
In brief
- The American CPI for July will be published on Wednesday August 12.
- The market expects annual inflation to be 3.4%, compared to 3.5% previously.
- A surprise could cause high volatility in bitcoin and the entire crypto market.
Wednesday’s CPI can rock the crypto market
The US CPI will be released on Wednesday at 8:30 a.m. New York time. The crypto market already knows the power of this meeting: in July, bitcoin approached the CPI figures around $62,000, with traders positioned for high volatility. This time, the stakes go even further beyond just BTC. The economists surveyed anticipate annual inflation of 3.4%, slightly lower than the previous 3.5%.
Over one month, the CPI should increase by 0.1%, after a drop of 0.4%. The crypto market therefore expects continued disinflation, but with a monthly rebound in prices. A lower than expected figure could reassure investors. It would reinforce the idea that inflationary pressure is easing without requiring further monetary tightening. The dollar and bond yields could then lose ground. This could create a more favorable environment for risky assets.
Conversely, a higher-than-expected CPI would immediately change the reading. Persistent inflation would put interest rates back at the center of the crypto market. Bitcoin could then suffer as the dollar rises, while leveraged positions become more vulnerable to liquidation.
The Fed remains the invisible arbiter of crypto volatility
The release is particularly sensitive after Friday’s US jobs report. Weaker data reduced fears of another rapid rise in rates and helped bitcoin climb back above $65,000 earlier this week. ETH and several major cryptos have also benefited from the renewed risk appetite.
However, the Fed remains cautious. On July 29, it maintained its rates between 3.50% and 3.75%. The market is now looking to see if this pause can last or if inflation will force the central bank to become more aggressive again. This is precisely what makes CPI so important to crypto.
High rates make bonds and money market investments more attractive. Capital then has less reason to flow towards bitcoin and altcoins. A looser monetary outlook generally produces the opposite effect. Geopolitics further complicates the equation. Tensions in the Middle East continue to influence oil.
A further rise in energy could fuel inflation expectations and neutralize some of the good news coming from the labor market. Brent was still trading above $84 on Monday after several sessions of increases.
Wednesday is just the start of a high-risk week
The CPI will not be the only statistic capable of shaking up digital assets. On Thursday, the United States will publish its producer price index. The market will also monitor jobless claims. Friday will bring retail sales and the first consumer confidence data for August.
The crypto sector will also have its own catalysts. Securitize is due to release its results on Wednesday, while Gemini will announce its results on Thursday. U.S. institutional managers have until Friday to file their 13F forms, which may reveal new changes in their financial positions.
Bitcoin’s reaction on Wednesday will therefore be more important than the figure itself. A favorable CPI followed by a market unable to advance would indicate that buyers still lack conviction. An unpleasant surprise quickly absorbed would, on the contrary, send a signal of resistance.
The crypto market is thus facing a major macro test with very little room for error. Risks linked to energy remain particularly sensitive, as shown by BlackRock’s warning of a return to inflation driven by oil. On Wednesday, a few decimal places on the CPI could decide whether the crypto extends its rebound or plunges back into a new zone of turbulence.
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