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Inflation Fears Drop Bitcoin

Bitcoin price may retest US$20K on inflation fears. Action is needed to regulate cryptoassets that are not securities, says CTFC’s Chairman.

February 6, 2023 - A well above expected number of non-farm jobs creation in the US released on Friday put risk assets back on a downtrend. The surprising employment data made market participants question if the Fed’s interest rate hikes will decelerate after all. This brought the Bitcoin price below US$23k, now trading around US$22.8k. The greater-than-expected job creation has reignited the fears of inflationary pressure, and, consequently, it could give the Fed a reason to interrupt the deceleration of the rate hike pace it started in the last FOMC meeting. In our view, market participants will focus on the next release of US inflation data on Feb 14. Until then, the Bitcoin price may face some resistance to reclaim the US$23-24k price range.

The US$23-24k price resistance has been tested again since Bitcoin reached this price level in August/2022. If this price range is rejected, the support zone could be around the US$19-21k price range. We believe that only an above-than-expected US inflation reading on Feb 14 could drop the Bitcoin price to that range. Despite the strong job creation figures released last week, we believe the inflation data will continue to post a disinflationary trend reflecting the Fed monetary policy tightening so far.

Meanwhile, the regulators are still working on measures to prevent the crypto firms collapses that occurred in 2022 from happening again, hurting customers. The new Chairman of the Commodities Trading Futures Commission (CTFC), Rostin Behnam, said that cryptoassets that are not considered securities need comprehensive legislation, suggesting that there is still a gap in the regulation of crypto markets of non-security digital assets and that the CFTC is well positioned to fill the void. There is a soft dispute between CTFC and SEC regarding the regulation of the crypto space. Usually, CTFC has a more friendly approach, considering Bitcoin, at least, a commodity. We would see CTFC regulating Bitcoin as a positive outcome for the industry.

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