Bitcoin has bounced to a key resistance level, dismissing weakness in stocks and the financial woes of property giant China Evergrande. The relief, however, could be short-lived if U.S. inflation continued to run hot in August.
According to FXStreet, the U.S. consumer price index (CPI) is expected to have risen by 5.3% year-on-year last month following July’s 5.4% rise. The data is scheduled for release at 12:30 UTC.
“If inflation comes in above forecast, it will reaffirm investor views that the Federal Reserve will need to think more about price stability,” Joel Kruger, a currency strategist at LMAX Digital, said. “This will likely weigh on risk assets, which could ripple into short-term negative sentiment towards bitcoin.”
As discussed Monday, an above-5% inflation figure may speed up the Fed’s plans to begin unwinding the long-running liquidity-booting stimulus program by the year-end. That could weigh on asset prices in general.
As of now, bitcoin doesn’t seem worried about the possibility of the U.S. CPI boosting the odds of the so-called Fed taper. The top cryptocurrency by market value is currently trading above the 200-day moving average (MA) resistance at $45,866, a 1.7% gain on the day.
Stocks, however, are trading weak on caution ahead of the release. Major European indices are nursing moderate losses alongside flat-to-negative action in the S&P 500 futures.
Evergrande’s crisis
Mainland Chinese stocks tanked early today along with those in Hong Kong, as shares in property developer China Evergrande fell 10% after the company signaled a possibility of a “significant continuing decline in contract sales in September.”
Bitcoin remains unnerved by the growing risk of an Evergrande default despite the lingering speculation that Tether was securing its stablecoin tether, or USDT, with commercial paper issued by the real estate company. Tether – with a market value of $68 billion, the largest stablecoin – has penetrated every corner of the crypto market. As such, a loss of confidence in tether could deliver a severe liquidity shock to the broader market.
“With almost $850 million of loan repayments left in 2021 and the company in a downward spiral, the questions surrounding Tether and Evergrande may be about to be answered,” Coinbase Institutional said in a weekly email dated Sept. 10.
According to Adam Cochran, a partner with Cinneamhain Venture, an Evergrande collapse could send shockwaves around the world. “Regardless of what commercial paper you hold, bonds and commercial paper would take a hit and some issuers may even fold,” Cochran said in a tweet thread published early today. “Currently both Tether and Circle [the company behind stablecoin USDC] hold commercial paper, and while I think it unlikely that either would have large swaths of Evergrande bonds, the whole market will reel a bit.”
Matthew Dibb, co-founder and COO of Stack Funds, voiced similar concerns, saying “Asian equities look miserable and we are worried about contagion of risk-off flowing to crypto.”
Mid-week bounce?
Bitcoin may establish a secure foothold above the 200-day moving average if the U.S. inflation figure misses estimates by a big margin, forcing traders to scale back taper expectations. That would expose the recent peak near $53,000.
“We expect an oversold bounce mid-week when a counter-trend signal is likely per the DeMARK Indicators, and it would likely dispel the overbought downturn on the weekly chart,” Katie Stockton, founder and managing partner of Fairlead Strategies said in a weekly note published Monday.
The cryptocurrency fell by 11% a week ago and has been trading between $43,000 to $47,500 ever since. Prices fell by more than 2% on Monday as U.S. stocks dropped on fear of potential corporate tax hikes. In prepared testimony to the Senate published Monday in advance of his Senate appearance today, the U.S. Securities and Exchange Commission Chair Gary Gensler said the agency doesn’t “have enough investor protection in crypto finance, issuance, trading or lending,” and that it is comparable to the Wild West.
