Market Wrap: Bitcoin Prices Pull Back Ahead of US Inflation Report

Bitcoin (BTC) retreated in Tuesday trading, falling 4%. The decline occurred on average volume, suggesting that investors lack conviction in the crypto market’s direction. Ether, the second-largest cryptocurrency by market capitalization behind bitcoin, recently fell 5%.

Traditional assets declined as well, with the S&P 500, Dow Jones Industrial Average (DJIA) and Nasdaq recently falling 0.4%, 0.2%, and 1.17%, respectively. Investors appear to be spooked by disappointing earnings over the past two days.

This article originally appeared in Market Wrap, CoinDesk’s daily newsletter diving into what happened in today’s crypto markets. Subscribe to get it in your inbox every day.

The price of gold rose by 0.31% while crude oil declined 0.14%.

Macroeconomic news was light while market participants anxiously await the results of Wednesday’s release of inflation data in the U.S. Consumer Price Index (CPI). The report is expected to reveal how well the Federal Reserve’s anti-inflation measures have been working. The consensus of expectations is for an 8.7% year-over-year increase in the CPI.

Expectations for “core” inflation (which excludes energy and food costs) are that prices rose 6.1% year over year.

Alternative currencies (altcoins) tumbled, with EOS and XLM dropping 7% and 9%, respectively.

Markets Pausing Ahead of CPI Report, Bitcoin Declines

Markets on Tuesday were focusing on release of the July CPI, which will show whether ongoing efforts to reduce inflation are working. The broad sell-off of stocks and crypto across traditional and digital markets suggests traders were looking to reduce risk ahead of the report, which will be released at 12:30 p.m. UTC (8:30 a.m. ET).

Should the CPI rise above the consensus expectation for an 8.7% increase, assets on traditional and digital markets will likely fall in price on expectations of another interest rate increase after September’s Federal Open Market Committee meeting.

The CME FedWatch tool, which measures the probability and likely extent of future rate hikes, now shows a 70% probability of another 75 basis point rate increase, which would match the last rate hike announced in June.

Should the inflation rate fall below forecasts, the prospects for a 75 basis point increase will likely decline and crypto markets will respond positively.

The interest rate for the two-year U.S. Treasury note continues to exceed that of the 10-year Treasury, which historically has been an indication of economic distress.

The spread between the two-year and 10-year Treasury notes contextualizes how investors are pricing lending risk. Currently the spread implies that traders require greater compensation to lend money for two years than they do to lend money for 10 years, which indicates a lack of confidence in short-term economic conditions.

BTC is testing its trendline

From a technical perspective, BTC fell below its trendline on Tuesday. It will be important for traders to see if it reclaims the trendline. Volume in Tuesday trading fell below its 20-day moving average, a signal that there is limited conviction in the move lower.

Should bitcoin fail to reclaim the trend, it appears to be positioned to trade in a range rather than taking a significant downturn. The Volume Profile Visible Range (VPVR) tool shows spikes in activity at both the $23,000 and $20,000 levels.

The VPVR tool measures levels of activity at specific price levels. The data can show investors where price agreement occurs, indicating support and/or resistance.

The area of highest volume is labeled the “point of control” and is illustrated below (red line). The point of control can also indicate price levels where larger investors placed trades, as they tend to account for greater volume. The point of control is a barometer for where investors wish to get long or short an asset.

Altcoin roundup

• Former Terra-Affiliated Project Kujira to Issue Stablecoin: The crypto project that was building on the Terra Classic blockchain and moved to layer 1 protocol Cosmos after Terra’s implosion is about to issue a stablecoin called USK. The token is set to maintain its price peg by combining overcollateralization of ATOM tokens with trading incentives.Read more here.
• Reddit Expands Community Points Offering With FTX Pay Integration: The social media giant has formed a partnership with FTX Pay to allow users to pay gas fees on transactions using community points. This integration will also allow Reddit users to purchase ether (ETH) directly on the app. Read more here.

Relevant insight

• Listen 🎧: Today’s “CoinDesk Markets Daily” podcast discusses the latest market movements.
• German Crypto Exchange Nuri Files for Insolvency:Users are still able to access deposits, according to the exchange.
• Zipmex to Restart Ether, Bitcoin Withdrawals in the Next Few Days:The exchange plans to release “a specific amount” of ETH and BTC on the two dates.
• Someone Is Trolling Celebs by Sending ETH From Tornado Cash:An anonymous crypto user transferred small amounts of ether from a sanctioned address to stars and prominent crypto figures on Tuesday.
• Inflation Probably Slowed in July, but Not by Enough to Trigger Crypto Bull Run: Goldman Sachs (GS) still sees the risk of higher consumer prices.
• Ethereum Layer 2s Could Take Revenue From the Blockchain as They Become More Competitive, Coinbase Reports:For now, transacting on the base blockchain provides a solution for users who need or value security over speed, the report said.
• Cipher Mining Lowers Per-Terahash Cost of Crypto Mining Rigs Even as Quarterly Loss Widens:The miner expects to have 6.9 exahashes per second of computing power deployed by early 2023.
• Crypto Intelligence Platform Messari Plans to Raise $35M at $300M Valuation, The Block Reports:The company nabbed $21 million last year in a round led by Steve Cohen’s Point72 Ventures.
• Korean Blockchain Project Klaytn Commits $20M to Asian Universities for Blockchain Research:The funding program will support research at two of Asia’s most highly ranked technology schools.
• Greylock, Pantera Led $18M Round for NFT Infrastructure Provider Pinata:Silicon Valley investment giant Greylock also backed Pinata’s $3.5 million seed round last year.
• Andreessen Horowitz Leads $20M Funding Round for CreatorDAO:Paris Hilton and musicians The Chainsmokers also invested in the project.

Other markets

Sector classifications are provided via the Digital Asset Classification Standard (DACS), developed by CoinDesk Indices to provide a reliable, comprehensive and standardized classification system for digital assets. The CoinDesk 20 is a ranking of the largest digital assets by volume on trusted exchanges.