The cryptocurrency market has experienced a significant jump in market capitalization over the past 24 hours, as traders eagerly await the release of the latest U.S. inflation data. With a valuation of $1.035 trillion and intraday gains of 1.58%, major cryptocurrencies like Bitcoin (BTC), Ether (ETH), and Solana (SOL) have all seen positive movements. This surge in investor confidence can be attributed to the U.S. consumer price index (CPI) report, which revealed a 0.6% increase in August, the largest monthly rise in over a year.
When analyzing the U.S. CPI report, it becomes evident that the rise in prices is primarily driven by soaring gasoline prices, which accounted for over half of the overall increase. However, core prices, which exclude food and energy costs, rose by a modest 0.3%, slightly higher than the estimated 0.2%. Despite this, core inflation remains on a downward trajectory towards the Federal Reserve’s preferred target of 2%.
Derivative market traders have responded to this data by adjusting their predictions for a potential rate hike pause in September. The target rate probabilities for the Fed’s upcoming meeting have increased from 93% to 97% in just one week. Historically, stabilizing or reducing interest rates has been seen as a bullish signal by crypto investors, which could explain the recent price rally within the market.
Furthermore, the recent court ruling on FTX, a defunct crypto exchange, has also contributed to the positive sentiment among investors. Federal Judge John Dorse approved the sale of FTX’s crypto assets but imposed restrictions on the sale of Bitcoin, Ethereum, and other affiliated assets, which make up approximately 70% of the entire crypto market valuation. The exclusion of these assets in the court ruling mitigates the potential selling pressure that the FTX sales may have caused.
Additionally, the court ruling limits the sales of remaining crypto holdings to a maximum of $50 million per week, with written notice required beforehand. Researchers at Messari had previously dispelled theories about FTX sales triggering massive selloffs in the crypto market, emphasizing that Solana (SOL), the exchange’s largest crypto holding, is subject to vesting schedules. SOL has performed exceptionally well over the past 24 hours, contributing to the overall upward movement of the market.
The recent gains in the cryptocurrency market are part of a short-term rebound that commenced on September 11. During this time, the market’s daily relative strength index (RSI) dropped to 30, a level considered “oversold” by traditional analysts, signaling a potential buying opportunity. This buy signal has been prevalent throughout the year in the crypto market.
However, it is important to exercise caution as this rebound does not guarantee an extended buying trend. The market remains at risk of a bearish continuation as long as it remains below crucial exponential moving averages (EMA), specifically the 50-day EMA (~$1.08 trillion) and the 200-day EMA (~$1.06 trillion). Moreover, the market’s multi-month descending trendline resistance has acted as a barrier to its upside potential since July 2023.
The ongoing rebound is likely to continue until the market valuation reaches the trendline-EMA confluence, which is projected to occur at $1.04 trillion. However, there is also a possibility of a pullback either before or after testing this confluence, which could result in a significant decline in the market valuation to the range of $980-995 billion throughout Q4.
The cryptocurrency market has experienced a rebound in the wake of the anticipated release of U.S. inflation data. Positive investor sentiment stems from the increase in the U.S. CPI and the prospects of a rate hike pause by the Federal Reserve. The recent court ruling on FTX’s crypto assets has also alleviated concerns of potential selling pressure within the market. However, it is crucial to approach this rebound with caution, considering the market’s technical indicators and the potential for a pullback in the coming months.
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