13 Sep 2022 · 2 min read

Why Crypto Prices Are Becalmed Before the Coming Storm

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Although crypto assets are consolidating this week, the crypto space has had a very long month - coin prices have been finicky, with September beginning on a shaky note. 

As more investors continue to observe, cautious optimism appears to take hold. Nonetheless, this week is expected to be a watershed moment in the crypto space on multiple fronts.

Factors inside and outside the market are expected to play a role in determining the market's performance. This week could be pivotal to determining the market's direction in the short term. 

Markets Rally to Kickstart Week 2 

As we enter Tuesday, the crypto market has maintained the gains made over the weekend. Bitcoin is currently trading at $22,300, close to the one-month high of $22,500 set earlier this week.

So far, the BTC/USD pair has maintained the gains made over the weekend, with a falling US dollar acting as a trigger for risky assets and hedges as the week began. The traditional stock market, like crypto, saw a small boost. 

Both the NASDAQ Composite Index and the S&P 500 were up 1.1% after the market opened on Monday, with S&P continuing its strong rally after breaking through its 50-day exponential moving average (EMA) on Friday. 

S&P 500 Price Chart
S&P 500 Price Chart

However, the US dollar index (DXY), which tracks the dollar's performance against several other major currencies, was down 0.7% on the day.

US Dollar Index
US Dollar Index

CPI Data Is All That Matters

The current market condition appears stable as traders await US Consumer Price Index data (CPI). The metric, a key indicator of inflation, has been one of the most significant predictors of market gains or losses this year, particularly with global economies grappling with inflation and the aftermath of spending sprees to combat the coronavirus pandemic.

According to City Index, the August CPI figures, which will be released today, should be slightly positive. CPI is expected to fall by 0.1%, bringing year-on-year inflation to around 8%, a much better position than June's peak of more than 9%. However, Core CPI, which excludes energy and other volatile items, is expected to rise by up to 0.3%, bringing the year-on-year rate to 6.1%.

Traders appear to be hedging their bets as the Fed prepares to release CPI figures, which is why the dollar is struggling. If the released figures are better than expected, the greenback may rally, putting additional pressure on crypto prices.

Cautious Optimism as Markets Settle 

Despite the current rally, traders remain cautious because Bitcoin's technicals remain choppy. The leading cryptocurrency rallied over the weekend, but several analysts see its failure to break the $23,000 barrier as a possible bearish signal.

According to II Capo of Crypto, a well-known market analyst, the current price action represents a short squeeze that simply capitalises on the excitement surrounding the Ethereum Merge and other upcoming events. He added that he expects a further decline once the initial frenzy subsides.

Popular trader Crypto Ed expressed a similar sentiment, claiming that Bitcoin's upside potential is currently limited to around $23,000. However, a downward movement could send the coin back to the $20,800 region.

All eyes will be on the Fed and its release of CPI numbers, but with the Ethereum Merge also generating interest, the market could be in for one of its most important weeks in a long time.