$BTC touched $89k yesterday before bouncing back. Is it all clear now?
I'd be cautious. Tomorrow (January 15) the Consumer Price Index (CPI) data will be released.
And you need to remember--contrary to what many say--inflation is BAD for cryptocurrencies. Even Bitcoin.
The only case in which inflation could help $BTC is if the US dollar experiences massive devaluation. But that's not on the table at the moment.
To explain the next few days, let's start with a reminder.
I know, it seems like so long ago, but here's what happened to $BTC's price in 2022, when the US (and most of the world) experienced significant inflation.
80% - 90% declines were typical for most cryptocurrencies.
In response to these inflationary pressures, the Fed raised interest rates, which made the dollar comparatively stronger. It also took liquidity out of the system, so people had no cash to buy cryptos.
The lesson: in general, inflation is BAD for cryptos.
Tomorrow, the CPI data will print, and it is likely to be higher than the last month. Why?
Because oil prices are part of that CPI data and oil prices have gone up.
Featured in the graph below is the price of West Texas Intermediate (WTI)--typically, it's more stable than Brent (which the non-US world uses).
That WTI price is up A LOT over the past month.
So, it doesn't take a genius to discern that the CPI data will be higher
The good news is that the FED uses the core values of the PCE (Personal Consumption Expenditures) index in its decisions.
That measure strips out volatile prices from the energy sector.
But higher oil prices do indirectly affect pretty much everything else. So, it's likely that even the PCE print will be higher too.
The market has begun to price this in, which is why the CME Fed Watch tool shows that traders now think that 2025 will see only one interest rate cut this year -- probably in Q4 (green box).
What do you do?
Well, in this sort of scenario, we know that $BTC is likely to hold up well. This is what happened in 2024 as the FED repeatedly pushed back its interest rate cuts.
Altcoins--except for a few pockets--suffered.
What about ETH? Will it do better?
I think there's a case to be made that $ETH will perform well in this environment also.
In 2024, the ETH spot ETFs did not help because institutional players were concerned about the legal overhang the SEC posed. One of the principal uses (the killer app) of $ETH is DeFi, and that was all but illegal under Biden.
Post-Biden, this will not be the case. Look specifically at the FIT 21 Act to be passed, as that will make this market sensibility official.
But the point is that the market appears willing to treat $ETH like it does $BTC.
Concluding Thoughts
In the next couple of days, I'd expect volatility from the CPI print.
Trump's inauguration may change sentiment in the opposite direction.
Longer term, 2025 is shaping up to look like 2024 with the majors out-performing alts (with special exceptions for some pockets).
The new item is that $ETH may perform as well (or better) than $BTC over this period.
Happy Trading!
-Sebastian Purcell, PhD
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