The Marriner S. Eccles Federal Reserve Board Building in Washington DC on a bright spring morning. The building was completed in 1937. It was named after Marriner S. Eccles (1890–1977), a former Chairman of the Federal Reserve by an Act of Congress on October 15, 1982.

The Bitcoin price declined after the latest US inflation data. The BTC coin declined to $31,390, which is in the same range it has been in the past few weeks. It has a market capitalization of more than $615 billion. Other coins like Ethereum, Ripple, Binance Coin, and Cardano all declined after the inflation numbers.

Why BTC dropped after inflation data

The Bitcoin price dropped after the latest US inflation numbers that were published on Tuesday. The numbers showed that the headline consumer price index (CPI) rose by 5.4% in June after rising by 5.0% in May. This was the fastest pace since 2018. Similarly, the core CPI rose by 4.6%, which was higher than the median estimate of 4.0%. It was the fastest pace since 1991.

Bitcoin price declined after the strong inflation data because of their implication to interest rates. For starters, the Federal Reserve (Fed) has a dual mandate of ensuring that inflation and unemployment rate remains stable. In the past few months, the US unemployment rate has dropped from 14% to 5.9%. Flash numbers also show that the labor market has tightened. 

On the other hand, consumer inflation has jumped above the Fed’s 2.0% target. Therefore, there are signs that the Fed will start moving earlier than expected. In its most recent interest rate decision, the bank said that it will hike rates in 2023, earlier than the previous estimate of 2024. Further, the recent minutes showed that some members of the FOMC would like to see tapering of the asset purchases soon.

Other central banks have already started moving. For example, earlier today, the Reserve Bank of New Zealand (RBNZ) said that it will end its quantitative easing policy later this month. The Bank of Canada also decided to lower its asset purchases for the third time since October last year.

Therefore, as I noted before, Bitcoin price has a relationship with interest rates. In most cases, risky assets like BTC tends to underperform the market when the Fed is hawkish. For example, BTC and other cryptocurrencies struggled in 2018 when the Fed made four rate hikes. They then rebounded in 2019 as the Fed made two rate cuts.

Bitcoin price prediction

Bitcoin price

The daily chart shows that the Bitcoin price has found a strong support at the $31,000 range. The coin has struggled moving below this level several times before. It also seems to be forming a bearish descending triangle pattern, which is usually a bearish sign. The coin has also formed a death cross, which happens when the 50-day and 200-day moving averages make a crossover. 

Therefore, while it is too early to tell, there is a possibility that the coin will have a bearish breakout in the near term. If this happens, the next reference point will be June’s low at $28,747 followed by the next key support at $25,000.

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