Bitcoin ( BTC ) could fall as low as $30,000 if US inflation data to be released on Wednesday turns out to be higher than expected, warns Alex Krüger, founder of Aike Capital, an asset management firm based in New York.
The market expects the widely watched consumer price index (CPI) to rise 7.1% on an annual basis through December and 0.4% on a monthly basis. This increase shows why U.S. Federal Reserve officials are advocating a faster normalization of their monetary policy than previously anticipated.
Headline inflation in the US. Source: Bureau of Labor Statistics, Bloomberg
Further supporting their preparations is the normalization of the labor market, including rising incomes and falling jobless claims, according to data released Jan. 7.
"Crypto assets are at the furthest end of the risk curve," Krüger tweeted on Sunday , adding that since they have benefited from the Fed's "extremely loose monetary policy," suffice it to say they will suffer as "unexpectedly tightening" policy moves money into safer asset classes.
"Bitcoin is now a macro asset that trades as a proxy for liquidity conditions. When liquidity diminishes, the macro players now in the fray sell bitcoin, and all crypto follows suit."
The Fed has been buying $80 billion worth of government bonds and $40 billion worth of mortgage-backed securities every month since March 2020. Meanwhile, the US central bank has kept benchmark interest rates near zero, making it cheaper to lend to individuals and businesses.
But the collateral damage of loose monetary policy is higher inflation, which reached 6.8% in November 2021, the highest in nearly four decades.
So now the Fed, which once claimed that rising consumer prices are " transitory ", has changed its stance from expecting no rate hikes in 2022 to discussing three hikes along with balance sheet normalization.
