US inflation data alleviates interest rate risk, and Bitcoin maintains range consolidation

U.S. inflation data alleviates the risk of interest rate hikes, and Bitcoin remains in range volatility

Although interest rate risk has dropped significantly, Bitcoin remains within the trading range of nearly three weeks. Futures traders significantly lowered the probability of a September interest rate hike from nearly 50% to 32.4%. The U.S. producer price index (PPI) was flat month-on-month in July, while the consumer price index (CPI) was in line with expectations.

If interest rates are raised in September, it will push up the holding cost of leveraged cryptocurrency positions. After the release of two U.S. inflation data, the market's urgent expectations for a September interest rate hike disappeared, and the Bitcoin price fell below $64,000. However, the market's response to this was flat, which reflects more the current state of the cryptocurrency market than the impact of the data itself. Futures traders lowered the probability of a September rate hike to 32.4% from nearly 50% a day earlier, according to data from the CME FedWatch tool. Stocks rose on the news, but Bitcoin did not follow.

The US$65,000 mark has been facing selling pressure since the end of July

When the market receives news that should be good but is almost indifferent, constraints usually come from the supply side rather than the macro context. Buying demand brought about by macro positives was offset by selling, and prices stagnated. Since the end of July, selling has sprung up every time the price approaches $65,000, and the attempt to upturn on August 10 ended in failure like the July 22 high. The Relative Strength Index (RSI) is 46, slightly below the median line, indicating that the market currently lacks directional pressure rather than is in a state of tension. During the same period, buying stayed at the support level of $62,500, and the range between these two levels has remained for three weeks.

There are dense leveraged long positions below the current price, which provides an accelerating mechanism for price declines-as forced liquidations can trigger further market declines and trigger the next level of stop losses. Before assuming that macro background support protects prices downward, check the position of open interest relative to spot prices. This is not the case.

The flow of funds in spot ETFs has a more direct impact on daytime price movements than the Federal Reserve Watch tool. Inflows mean capital must actually buy tokens, which affects supply, while futures positions cannot do this. The two may go in opposite directions for weeks. A net outflow against the backdrop of positive macro data will confirm that the current price cap is a position issue rather than an interest rate issue, and cannot be resolved no matter how good the inflation data is.

There are three main channels through which interest rate news affects cryptocurrency prices

The first channel is the discount rate applicable to all risky assets, which explains why Bitcoin and the Nasdaq index moved in sync on the data release day. This channel responds quickly but has limitations because it affects market sentiment more than capital flows.

The second channel is opportunity costs, which have a particular impact on cryptocurrencies because Bitcoin does not pay interest. Each increase in expected yields on short-term Treasurys makes Treasurys a stronger competitor for funding. The comparison is particularly cruel when a risk-free instrument provides fixed returns while an asset moves sideways for months.

The third channel is leverage, which is reflected in the order book. Financing costs increase as policy interest rates rise, pushing up the lower limit of perpetual contract funding rates and reducing the arbitrage space for basis traders. Reduced basis capital means thinner liquidity, and thinner liquidity means that orders of the same size will lead to increased price volatility.

July Data Summary

The U.S. Bureau of Labor Statistics reported that the final demand producer price index (PPI) was flat month-on-month in July, while market expectations were for a 0.2% increase; the unadjusted year-on-year increase was 4.7%, lower than economists 'expectations of 4.9%. The consumer price index (CPI) rose 3.4% year-on-year, in line with expectations; the core CPI rose 2.5% year-on-year, also in line with expectations.

Gasoline prices are the main factor driving changes in the overall data. Final demand commodity prices fell 0.7% month-on-month, with energy prices dominating, with gasoline prices alone falling 5.7%, accounting for more than half of the decline in commodities. Excluding fuel, the situation changed: commodity prices excluding food and energy rose 0.1% month-on-month, service prices rose 0.2%, and construction prices rose sharply by 2.2%. When crude oil prices fall, gasoline prices fall quickly.

There is one piece of data that has a potential impact on cryptocurrencies. The Portfolio Management Price Index rose 6.5% in July, which was included in the Personal Consumption Expenditure (PCE) Price Index, which the Federal Reserve is more concerned about. These fees track the value of assets under management, so strong stock market performance will push the index higher and lag reflected in the core PCE. This means that the rise in risky assets has instead become one of the reasons for policy tightening.

The labor data did not provide the Fed with any reason to speed up or slow down action. In the week ending August 8, the number of people applying for unemployment benefits for the first time was 209,000, higher than the expected 202,000, but the four-week moving average was 199,000; the number of people continuing to apply for unemployment benefits was 1.777 million, lower than the expected 1.794 million.

How a September rate hike will affect market positions

The 32.4% probability of a rate hike suggests that a September rate hike is still a real possibility. Several Federal Reserve Board members have publicly stated that raising interest rates in September is the right choice, given that inflation is still well above the 2% target. Traders who completely deny this possibility are expressing opinions rather than observing facts.

Perpetual contract funding rates: Higher policy rates push up the funding rate floor because it is more expensive to hold Delta neutral long positions and the spread between perpetual contracts and spot must widen to make a profit. When the spread is insufficient, the basis trader will withdraw funds.

Stability coin yield competition: Every 25 basis point increase in short-term Treasury yields will widen the gap between the reserve yield of U.S. Treasury-backed issuers and the yield of on-chain borrowings paid to depositors, thereby attracting idle capital to tokenized Treasury bonds without smart contract risk.

Miners 'balance sheet: Listed miners hold debt and convertible bonds, and the path of rising interest rates will increase refinancing costs and put pressure on the prices of the assets they mine. Miners under financing pressure sell assets in markets where supply is already difficult to absorb.

Altcoins beta: In interest rate hikes, altcoins with a longer risk curve amplify Bitcoin's performance, and these markets are thinner with liquidity, so changes in the same percentage will lead to a larger decline in tail assets.

Drivers for the next step

Investors will next focus on the minutes of the last policy meeting, and useful information is often hidden in details that no one has summarized. The number of participants who believed that a rate hike was appropriate carries more weight than the wording of "data dependent". Any discussion of shrinking the balance sheet will drain the reserves that support risky investments, and regardless of the federal funds rate, dollar liquidity has historically been more correlated with cryptocurrency movements than the policy rate itself.

Between now and the September meeting, the market will welcome PCE data, another non-agricultural report and another CPI data, each of which may affect the probability of raising interest rates like yesterday's data. The 32.4% figure is just a snapshot of futures traders 'current position, and it has shifted by 17 percentage points in 24 hours.