Crypto Markets on High Alert Ahead of Inflation Report
As the US prepares to release its latest inflation data, the cryptocurrency market is bracing for impact. A strong correlation between Bitcoin and US technology stocks has been observed, suggesting that the equity market’s reaction to the report will set the tone for digital tokens.
A Two-Year High in Correlation
Data compiled by Bloomberg reveals that the 30-day correlation coefficient between Bitcoin and the Nasdaq 100 Index has reached a two-year high of approximately 0.70. This indicates that the two assets are moving in tandem, with a reading of 1 signifying perfect correlation and minus 1 indicating an inverse relationship.
Inflation Fears and Market Uncertainty
The inflation report is expected to show firm price pressures, which has sparked concerns about the Federal Reserve’s ability to cut interest rates further. This uncertainty has led to a rise in bond yields and the dollar, while stocks and crypto have come under pressure. Bitcoin’s value has dropped to around $97,000, roughly $11,300 below its record high last month.
Trump’s Impact on Crypto
The upcoming inauguration of President-elect Trump has added another layer of uncertainty to the market. Speculators are weighing the potential risks of inflationary tariff and immigration policies against Trump’s pledge to make the US a hub for cryptocurrency. Analysts believe that Trump’s momentum may still build in the days leading up to the inauguration.
Investors Prepare for Volatility
Hedging activity is on the rise in the options market, signaling that investors are bracing for increased volatility. The proportion of bearish bets has increased, indicating that investors are hedging against potential downside risks as the inauguration approaches.
Market Sentiment Shifts
The overall sensitivity to interest rates over the past month suggests that Wednesday’s CPI print will be crucial in shaping market sentiment. As investors navigate this uncertain landscape, one thing is clear: the next few days will be crucial in determining the direction of the crypto market.
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