Will Bitcoin’s price hold above critical support levels as the market digests cooling inflation and yen trade risks?

A Brief Look at Inflation Figures

Inflation can be compared to the room temperature — too hot or too cold, and it becomes uncomfortable. For the past few months, the U.S. economy has been striving to find a balance, and the latest inflation data is crucial in determining the next steps.

The Producer Price Index (PPI) data for July 2024 shows a cooling trend in inflation. PPI inflation fell to 2.2%, slightly below expectations and marking the lowest level since March 2024. Core PPI inflation also dropped to 2.4%, surprising many who expected it to be higher. With this data, a September rate cut seems likely.

July PPI inflation falls to 2.2%, below expectations of 2.3%. Core PPI inflation falls to 2.4%, below expectations of 2.7%.

The Consumer Price Index (CPI) data, set to be released on August 14, is the next big headline. This data will provide a clearer picture of how much everyday prices are rising or falling, impacting everyone from average consumers to big investors. Wall Street predicts a 2.9% rise, but there’s still a 37% chance it could be higher. If it exceeds 3.0%, it could signal a rise in inflation, affecting interest rates and market expectations.

Yen Carry Trade Uncertainty Continues to Cloud the Market

While recent U.S. inflation data suggests a cooling trend, the yen carry trade risks continue to pose a threat. The yen carry trade involves borrowing in Japan’s low-interest-rate environment and investing in higher-yielding assets elsewhere. This strategy faced disruptions as Japan’s interest rates rose for the second time since 2007, causing market turbulence.

The unwinding of this trade, estimated to involve up to $4 trillion, has already caused significant market disruptions, including a sharp sell-off in Bitcoin, which fell to $49,000 on August 5. Since then, Bitcoin has recovered to around $61,000, marking a 24% rise as of August 13.

Richard Kelly, head of global strategy at TD Securities, stated he would be ‘very hesitant’ to declare the end of the carry trade unwind.

Kelly believes the undervaluation of the yen and potential changes in interest rate differentials could lead to further market disruptions over the next one to two years. Barclays analysts also warn that the selling pressure from the carry trade unwind has not been fully exhausted, and volatility is likely to remain high.

What’s Happening in the Market?

The crypto market is facing turbulent times, with Bitcoin encountering its own set of challenges. According to Copper Research’s “Opening Bell” report, Bitcoin’s recent performance has been lackluster. Despite showing resilience against the German government’s sale of 40,000 coins, Bitcoin has struggled to regain its momentum.

Recent market volatility has scared off many investors, resulting in minimal buying activity for Bitcoin. However, there is a silver lining. Recent data shows a noticeable uptick in inflows into Bitcoin and Ethereum ETFs over the last two days.

On August 13, the 12 spot Bitcoin ETFs recorded total inflows of $38.94 million, a nearly 40% increase from the $27.87 million recorded the previous day.

BlackRock’s IBIT fund led the charge with $34.6 million in inflows, bringing its total to $20.36 billion since its launch. Ethereum also saw a surge in interest, with nine spot Ethereum ETFs recording net inflows of $24.3 million on August 13.

What to Expect Next?

The current data suggests that the market is at a critical juncture. Bitcoin’s next move could define the direction of the entire crypto market in the coming weeks. Crypto analyst Michaël van de Poppe noted that Bitcoin is in a choppy phase, with its immediate future hinging on whether it can hold above the $56,000 to $57,500 range.

Bitcoin is relatively choppy; from a lower timeframe TA perspective, it needs to stay above $56-57.5K to rally toward the other side of the range.

The increase in inflows to Bitcoin and Ethereum ETFs indicates that institutional investors are still interested, albeit cautiously. However, if volatility continues, we might see more sideways movement or another dip.

For now, it’s a waiting game. If the macroeconomic environment stabilizes, Bitcoin could break out of its current range and aim for new highs. Stay cautious, trade wisely, and never invest more than you can afford to lose. For more updates on cryptocurrencies and market trends, stay tuned to Global Crypto News.

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