Inflation Still Running Hot! A September 2022 Bitcoin Price Update
Trading Analysis

Inflation Still Running Hot! A September 2022 Bitcoin Price Update

1 year ago

With August's CPI print coming in higher than expected and month-on-month inflation at a 40-year high, BTC has taken a knock. Prices touched the 20K level — but will we see more downside?

Inflation Still Running Hot! A September 2022 Bitcoin Price Update

Table of Contents

With summer mostly behind us, it’s time to shear the sheep again. And by sheep, our hearts are with the poor ones who bought into the bear market rally peak of $25K and thought Bitcoin is heading back to $30K.

If the above sounds like gibberish to you, you probably have not been bullish during the last mini-rally. Or you didn't hear the bad news from the macro front that put an end to it (inflation still high!).

Two months after our Bitcoin July 2022 update, it's time to look at what has happened in the markets and what we can expect for this year's final quarter. We'll cover:
  • The BTC price and latest macro news
  • An update of our July 2022 price prediction
  • Where the BTC price is heading next
  • A short appendix on ETH

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The BTC September Rally Concludes — for Good?

In our July 2022 update, BTC was hovering around $21K. A graph says more than a thousand words in this case in terms of what happened next:

In other words, not much. Talk about going full circle. A brief rally, followed by the elevator down, followed by another brief rally, followed by another elevator down.

Some also call this a crab market.

Crypto traders in summer 2022

However, the latest elevator down may set the tone for the rest of the year since the news was, in fact, significant. We are (obviously, again) talking about inflation:
The markets reacted in due course and lost all the gains from their recent rally:
And, of course, Bitcoin got hammered by falling more than $2,000 within minutes.
The culprit was a higher-than-expected Consumer Price Inflation (CPI) print, which significantly overshot to the upside. It laid to rest all the hopes that inflation is under control. Quite the opposite: month-on-month inflation is at 40-year highs:
Without going too deep into the nitty-gritty of the macro news, the simple explanation is: energy prices are slowly coming back down, but there's seemingly still too much liquidity in the system.

While the energy contribution has fallen, inflation in service prices is picking up. That points to consumers correcting their price expectations upwards:

Alright, so what does that mean for the price of BTC?

A July-September BTC Price Comparison

Let's do a side-by-side comparison of on-chain data and Crypto Twitter sentiment in July and September.

On-chain Data: July vs September

In July, these were the main takeaways:

  • Comparing holders' cost basis to the actual market prices, we can see a bottom is forming.
  • The share of coins held at an unrealized loss is declining.
  • Miners are capitulating.
  • A record share of stablecoins on the sidelines indicates potential for a slight rally.
What's new in September?

Not much, really.

The average cost basis of all market participants still stands at a small unrealized loss. And the short-term holders (<155 days) still have a slightly higher cost basis than the long-term holders (>155 days).


That suggests investors are jostling for a good entry price but are still sensitive to macro data (as evidenced by the news):


Another interesting factor is the current low liquidity conditions. The realized profit/loss ratio shows that most coins change hands at a loss, meaning supply currently exceeds demand:


In short: nothing new on the on-chain front, as we're still in the time-based capitulation phase.

Industry Sentiment: July vs September

In July, major industry figures suggested the bottom is in  — among them Raoul Pal and Sam Bankman-Fried.

What do the "crypto thought leaders" have to say about the latest dump?

Surprisingly, not much.

Crypto Twitter was not particularly bearish after the news. Some, like CryptoDonAlt, suggest we have banked most of the rally:

Daniel Cheung, who earlier this year predicted more downside was yet to come, was fairly restrained about the market nuke:

But neither of them, or any other voices in the space, expects imminent doom for the markets.

In short: the industry is still wary of getting whacked by macro news but doesn't expect another leg down (for now).

What's Next for Bitcoin?

The all-important question, though, is how this new data point will affect the Fed's decision-making.

And it could mean bad news for Bitcoin.

A June Messari report on the state of the market suggested a bear case that inflation keeps rising for some time. That seems to be materializing now. Although supply-side inflation is somewhat receding, demand-side inflation (like services) could prompt the Fed to take drastic measures. One would be a potentially massive interest rate hike next week, and the markets are warming up to that idea:
Of course, as Arthur Hayes explained, the interest rate is not the only factor influencing the price of BTC. But a 100 bps hike would surely trigger another sell-off. Even if the Fed goes with a 75 bps hike, we've seen that bulls in this market are walking on the proverbial eggshells.
In short: macro-wise, it seems to be pointing to further downside.

Appendix: What About Ethereum?

That's all well and good, but Ethereum is the crypto-asset that's taking all the spotlight now, isn't it?

Indeed, even though in the last week, BTC dominance has been rebounding off a vital resistance line:

But obviously, all eyes are on the Ethereum Merge for now. While it has successfully merged already, which way the ETH price goes is anyone's guess. The consensus trade has been longing spot ETH and shorting ETH in the futures market, leading to an outrageous funding rate for ETH shorts. It'll be interesting to see how the markets will play out in the following days and weeks.
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