Although it is difficult to make predictions about the price of Bitcoin without having access to the Fed’s data yet, a couple of scenarios can still be outlined.
Summary
Inflation and Fed monetary policy: forecasts on the price of Bitcoin
Today and tomorrow will be two key days for financial markets. Everyone is waiting for both the data on inflation in the USA in November, which will be released today, and the Fed’s decision on interest rates, which will be communicated tomorrow.
First of all, it must be said that the most important data that will be released today is not about the overall annual inflation in the USA in November, but about the core inflation. In fact, it is on this latter that the Fed will base its decisions tomorrow.
In October, the annual core inflation in the USA had dropped to 4%, from September’s 4.1%, and markets are betting that it remained stable at 4% in November.
Based on this assumption, they are also betting that it is possible but not particularly likely for the Fed to start cutting interest rates as early as March.
At this moment, the markets practically assume not only that the Fed will leave interest rates unchanged tomorrow, but also that they will not increase them in January.
In February, no decision will be made, so all bets are on what will be decided in March and subsequently in May, when according to the markets, rates will most likely be lower than current ones.
But if the data communicated today is different from 4%, the markets could react very quickly.
Bitcoin price predictions before the release of Fed data
In particular, if the data were to turn out to be less than 4%, or if the decline in October continued into November, the markets could react positively, because at that point they could consider a possible interest rate cut in March much more likely.
If, on the other hand, it were to exceed 4%, they should react negatively, because at that point optimism about May could also dissolve.
It should be noted not only that until a few weeks ago they considered a rate cut before June 2024 unlikely, but also that recently some theoretically authoritative forecasts have emerged suggesting that the cut could even begin in July.
Therefore, in the event that it is announced today that the annual core inflation rate in the USA in November may have risen above 4%, interrupting a continuous decline that has been ongoing since April, the negative reaction of the markets could interrupt the rise in the price of Bitcoin, and probably cause the price to fall below $40,000 again.
In case the data were instead lower than 4%, thus disproving the hypothesis that the decline has stopped, the markets could react positively, and at that point the price of Bitcoin could resume its rise, after yesterday’s correction.
It is very difficult to predict what could happen if the data were exactly 4% as expected.
The scenario of the retracement
Yesterday’s was not a true retracement, but only a correction due to the fact that the price of Bitcoin in the previous days had risen too much.
In fact, after dropping from $43,000 to $40,000, it quickly bounced back above $41,000.
However, according to some analysis, the hypothesis of a real retracement remains on the table.
This is what analysts at Bitfinex hypothesize in their latest report Bitfinex Alpha.
However, this is only a hypothesis, so much so that the same analysts state that there is a small group of investors who overall control 16% of all Bitcoins that could make the difference.
The fact is that the supply of BTC on exchanges is at its lowest in the last six years, and this could potentially favor a further rise, at least in theory. This scenario is reinforced by the fact that deposits on exchanges are also decreasing, which suggests a reduction in selling pressure.
The problem, however, is the potential profit-taking that could occur if the upward trend were to end.
The bull run hypothesis
However, the hypothesis of the continuation of the small bull run that started at the end of October, which could trigger a major bull run in 2024, also remains on the table.
Although it is a minority hypothesis, it cannot be ruled out to date.
In fact, favorable conditions seem to be there, even if a trigger is still missing. Without a trigger, this scenario easily won’t happen, also because if the growth trend were to end, it is plausible that profit-taking will occur.
The reason why such profit-taking has not yet occurred is that many expect to be able to earn even more by possibly selling at higher prices, since the current earnings are not high enough to prompt immediate selling.
Many things will depend on the decisions of the Fed, and therefore on the data released today.
If the Fed were to continue to maintain its economic policy very restrictive for a long time, there might not be enough liquidity in the markets to trigger a new bull run. Although at the moment it is the Chinese central bank that is injecting liquidity into the markets, it is not injecting much, so the situation remains fairly balanced.
In the event that markets between today and tomorrow were to be convinced that the Fed’s monetary policy will begin to soften even before the April halving, then the hypothesis of a new major bull run will strengthen.
