fter climbing to an all-time high in March, the price of Bitcoin has spent the past two months consolidating in a narrow range. According to one analyst, a cooling in US inflation could provide the catalyst for Bitcoin to break out of this sideways trading pattern and surpass its past price peak.
Inflation a Key Driver of Bitcoin Price
Markus Thielen, head researcher at analytics firm 10x Research, stated in a recent report that a May Consumer Price Index (CPI) print of 3.3% or lower would be the impetus for Bitcoin to achieve a new all-time high. The CPI, which measures inflation at the consumer level, is scheduled to be released by the Bureau of Labor Statistics on June 12th.
In his analysis, Thielen argues that while the price movements of Bitcoin may appear random at times, the cryptocurrency's primary driver is macroeconomic conditions like inflation. Several past instances support this theory. In April, when CPI growth came in at 3.5% versus expectations of 3.4%, Bitcoin sold off heavily in the following weeks. Similarly, higher-than-forecast CPI prints in January were accompanied by weakness for Bitcoin during that month.
Anticipation Ahead of May CPI Results
Over the two weeks leading up to the May inflation data, inflows into spot Bitcoin exchange-traded funds (ETFs) have remained robust according to data from Farside Crypto. This suggests traders are positioning for potentially positive news. On May 21st, total daily inflows peaked at $305.7 million as investors anticipated a moderation in price pressures.
Should the May CPI increase less than the 3.3% threshold, Thielen's analysis implies renewed optimism could lift Bitcoin to a fresh record high. His theory is that signs of cooling inflation would bolster the view that current monetary policy tightening campaigns may not need to be as aggressive. This could buoy the demand environment for cryptocurrencies.
However, Thielen also notes that if CPI growth rises to the upside again, the recent momentum seen in Bitcoin stands to weaken. After hitting seven-week highs in late May, the largest cryptocurrency by market cap has since traded in a narrow range as participants await the inflation data. A higher-than-expected print may dampen bullish spirits.
Outlook Depends on CPI Surprise
The forecast of 10x Research suggests the short-term outlook for Bitcoin hinges substantially on the surprise component of the forthcoming May CPI report. Having consolidated for over a month, Bitcoin may require confirmation that inflation is indeed moderating to muster the strength for a renewed all-time high. However, an additional inflation uptick risks prolonging the sideways trading pattern. The reaction to the June 12th economic release could therefore trigger volatility with long-term implications for the cryptocurrency's price trajectory.
