Market Wrap: Bitcoin Drops as Traders Await June CPI Inflation Report

Bitcoin was lower Monday, falling along with most digital assets, as traders awaited a key U.S. inflation report due out early Tuesday.

The largest cryptocurrency by market capitalization was holding above price support at $32,000, with $36,400 seen as the upside target. For the past seven weeks bitcoin has mostly stayed in a range between $30,000 and $40,000. 

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"It is starting to feel like the calm before the storm as muted and quiet activity appears across spot, derivative and on-chain metrics,” the blockchain analysis firm Glassnode wrote Monday in a report. 

Many cryptocurrency investors see bitcoin as a potential hedge against inflation, so the release Tuesday of the June consumer price index reading by the U.S. Labor Department’s Bureau of Labor Statistics should provide a key data point. 

The prior month’s report showed a 5% jump in the all-items index, the fastest since 2008, driven by higher prices for used cars and trucks. 

On average, analysts expect a 4.9% reading for June, but any acceleration might rekindle speculation the Federal Reserve might need to slow its efforts to stimulate the economy. The U.S. central bank has nearly doubled the size of its balance sheet since early 2020 to more than $8 trillion, and the money-printing is seen as a catalyst for bitcoin’s price gains since then. 

“The benchmark crypto has a solid price foundation, considering it’s unlikely we’ll see a reversal in the race to debase,” Bloomberg Intelligence analyst Mike McGlone wrote Monday in a report. “When measuring the value of an individual currency, the dollar, for example, may be strengthening or weakening versus a basket of like legal tender. Yet, it's the entire fiat-currency market that's declining.”

There’s some speculation that faster inflation in areas where the economy is reheating, such as airfares and lodging, might spread to enduring categories like rents. 

“As of yet, this has largely not happened, supporting the Fed’s narrative that such inflationary pressures are transitory,” Deutsche Bank analysts wrote in a July 9 report. 

Consumers are apparently starting to believe higher prices might be the new norm: A survey released Monday by the Federal Reserve Bank of New York found consumers, on average, expect prices to rise 4.8% over the coming year, up from a 4% expectation a month earlier. 

Of course, it goes without saying there are a lot of different ways to measure rising consumer prices, and the CPI might not provide the truest picture.  

It’s summer in the Northern Hemisphere, and that might be one explanation for why cryptocurrency markets have been so listless of late. 

Glassnode described the bitcoin market as “impressively quiet.” 

Trading volumes in the largest cryptocurrency have trended downward, and the digital-asset firm Eqonex speculates it might be, at least in part, because Wall Streeters who have recently nosed into cryptocurrencies are, well, taking a break. 

According to the firm’s daily newsletter Monday, “2020 and 2021 marked the arrival of financial institutions into the crypto space. We celebrated, we cheered. But we forgot one thing: The people who work at these giants of finance love a summer holiday.”

Last year’s coronavirus-related lockdowns might play a part. Now that vaccines are rolling out and more people are able to get out and about and travel, some traders might be jumping at the chance to get away – and making up for lost time.

“Bitcoin may trade 24/7/365, but traders do not,” Eqonex writes. “Especially those with lake houses.”

Bitcoin’s sluggishness comes as U.S. stocks have again climbed to another all-time high. As 2021 pushes deeper into its second half, some analysts might start to evaluate their track records. Bitcoin’s price is notoriously volatile, so naturally the question arises of whether the reward justifies the risk.  

The Standard & Poor’s 500 Index was led higher on Monday by financial and real-estate stocks, with banks including JPMorgan and Goldman Sachs set to report quarterly earnings starting Tuesday.

“The biggest things on people’s minds right now are the start of earnings season and the economic releases on the inflation front,” Eric Freedman, chief investment officer at U.S. Bank Asset Management Group, told Bloomberg News. The 10-year U.S. Treasury yield advanced 0.01 percentage point to 1.37%. 

At one point earlier this year bitcoin had doubled from its price at the end of 2020. But the cryptocurrency’s recent slide has shaved the year-to-date gain to 14%. Such a performance trails the 17% increase for the S&P 500. 

Such track records are key because, despite frequent admonitions that past performance is not a guarantor of future success, many investors allocate money to assets whose prices have been rising recently. Fear of missing out was a powerful driver for bitcoin in 2020, but at the moment it doesn’t seem like there’s a lot to worry about. 

Digital asset investment funds saw a $4 million net capital outflow for the week ended July 9, reversing a net capital inflow of $63 million for the prior week. Trading volume in bitcoin, the largest cryptocurrency, dropped to $1.58 billion, the lowest since October 2020. 

For the week ended July 9, bitcoin-focused funds recorded a $7 million capital outflow, according to a report by digital asset manager CoinShares. The cryptocurrency’s price has been consolidating in a narrow range of $32,000 to $35,000. 

For recent weeks, North American funds dedicated to bitcoin have seen constant capital inflows while their European counterparts kept seeing outflows, which indicates “a geographic divergence in sentiment at present,” according to CoinShares. 

Last week, Ethererum, Binance and Cardano saw minor inflows, while the largest inflows went into multi-asset investment funds with $1.2 million. 

Most digital assets on the CoinDesk 20 ended lower on Monday.

Notable winners as of 21:00 UTC (4:00 p.m. ET):

eos (EOS) +1.37%

Notable losers: 

the graph (GRT) -7.06%

polkadot (DOT) -5.89%

uniswap (UNI) -5.37%