First Mover Americas: Bitcoin Eyes Weekly Loss Ahead of US CPI

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By Omkar Godbole

Macroeconomic fears resurfaced this week, putting pressure on risk assets, including bitcoin (BTC). The top cryptocurrency traded at $43,300 at press time, representing a 6% drop for the week.

The minutes of the Federal Reserve's (Fed) March meeting released Wednesday revealed that policymakers plan to trim the Fed's almost $9 trillion portfolio by up to $95 billion each month. At that pace, the Fed would need four years to shrink the balance sheet to the pre-pandemic level. Many Fed officials said they were prepared to raise interest rates in half-percentage point increments in upcoming meetings to control inflation – a far-steeper pace of monetary tightening than the usual quarter-point hikes.

That puts the focus squarely on the U.S. consumer price index (CPI) for March, due for release on Tuesday. The data is expected to show the cost of living in the world's largest economy rose to an annualized 8.3% in March versus 7.9% in February, according to Dailyfx.

One narrative is that an extra hawkish campaign by the Fed is already priced in and that a high CPI figure could be a non-event. (Whether the Fed will be able to walk the talk is a topic of discussion for another day). The Fed minutes are backward-looking, meaning they tell us what policymakers were thinking in mid-March, before the impending CPI release.

Therefore, an above-8% CPI print, the first since 1982, could see investors reassess the pace of the Fed's tightening, injecting volatility into bonds and risk assets.

A big miss on CPI could temporarily restore the risk-on sentiment. However, a massive scaling back of rate hike bets would require consecutive weak inflation prints. But, that's unlikely, as per some experts.

"Higher inflation has become increasingly broad-based. Since the start of 2021, the share of items in the consumption basket that have seen very large price rises has increased steadily," the Bank for International Settlements said in a note published on April 5. "In particular, growth in services has accelerated. Because growth in service prices tends to be more persistent than that in goods, inflation may be becoming more entrenched."

Lastly, bitcoin's rising correlation with equities means it could underperform traditional store of value assets like gold in the coming months. The yellow metal and oil outperformed the S&P 500, Wall Street's benchmark index, by significant margins during previous periods of stagflation.

History could repeat itself, drawing investors away from equities, especially tech stocks and toward energy. Analysts at JPMorgan foresee a 40% rally in commodities in the coming months.

"In the current juncture, where the need for inflation hedges is more elevated, it is conceivable to see longer-term commodity allocations eventually rising above 1% of total financial assets globally, surpassing the previous highs,” the JPMorgan strategists wrote in an April 6 note. All else being equal, that “would imply another 30% to 40% upside for commodities from here,” they said, according to Bloomberg.

By Helene Braun

Decentralized finance (DeFi) firm Truflation is building a new gauge to track inflation independent from the government and in real-time. Think of it as a competitor to the consumer price index (CPI), and one where officials can’t move the goalposts.

“The framework that [the government] is using is a hundred years old … and they have continuously tried to evolve that versus taking a fresh approach in an age where we’ve got everything computerized,” Truflation founder Stefan Rust told CoinDesk in an interview.

The team started building Truflation after former Coinbase Chief Technology Officer Balaji Srinivasan challenged Web 3 developers to build a censorship-resistant inflation feed, claiming that “the centralized state isn’t going to provide reliable inflation stats,” and promising an investment of $100,000.

Read The Full Story Here: A Censorship-Resistant Inflation Index Is Being Built on Chainlink

Today’s newsletter was edited by Omkar Godbole and produced by Bradley Keoun and Stephen Alpher.