Bitcoin crash ahead? Expert warns higher inflation could whip BTC price to $30K

Alex Krueger, founder of Aike Capital – a New York-based asset management firm, has warned that Bitcoin (BTC) could drop as low as $30,000 if US inflation data on Wednesday comes in higher than expected.

The market expects the widely followed Consumer Price Index (CPI) to rise by 7.1% in the year to December and 0.4% on a monthly basis. This rally highlights why US Federal Reserve officials are rooting for a faster normalization of their monetary policy than previously expected.

Headline inflation in the United States. Source: Bureau of Labor Statistics, Bloomberg

Further supporting their preparedness is the return of the labor market to normal, including rising incomes and declining unemployment claims, according to data released Friday.

Crypto assets are at the extreme end of the risk curve. chirp Krueger on Sunday, adding that since they have benefited from the Federal Reserve’s “extremely loose monetary policy”, it suffices to say that they will suffer as the “unexpectedly tighter” policy shifts money into safer asset classes.

On the subject of his tweet, he also said:

“Bitcoin is now a macro asset that is being traded as a proxy for liquidity conditions. With liquidity dwindling, macro players are now selling into the fray Bitcoin, and all cryptocurrencies follow.”

The first rate hike in March 2022?

The Fed has been buying $80 billion in government bonds and $40 billion in mortgage-backed securities every month since March 2020. Meanwhile, the US central bank has kept benchmark interest rates near zero, making lending to individuals and businesses cheaper.

BTC/USD against the Federal Reserve’s balance sheet. Source: TradingView

But the collateral damage of loose monetary policy is rising inflation, which reached 6.8% in November 2021 – the highest rate in nearly four decades.

So now the Fed, which has claimed that the consumer price hike is “temporary,” has shifted its stance from expecting no rate hikes in 2022 to discussing three hikes along with normalizing its balance sheet.

“It’s more dramatic than we anticipated and the Fed’s shift to a hawkish stance was a surprise,” Leo Grohosky, chief investment officer at BNY Mellon Wealth Management, told CNBC, adding:

“Most market participants expected higher rates, less accommodative monetary policy, but when you look at the fed funds it says there is a 90% chance of a rally in March, New Year’s Eve which was only 63%.”

Little Bear Market?

Mike McGlone, chief commodity strategist at Bloomberg Intelligence, Call $40,000 is an important support level in the bitcoin market. Moreover, he expects the cryptocurrency to eventually come out of its bearish phase as the world goes digital and treats Bitcoin as collateral.

BTC/USD daily price chart showing the history of the $40K level as support. Source: TradingView

The statement arrived with Bitcoin dropping from its record high on November 8 at $69,000, and is now over 40%. According to Eric Irvin, CEO of Blockforce Capital, the decline primarily dumped new investors, leaving the market with long-term shareholders.

This could be the start of a “mini-bear market,” the CEO told Bloomberg, adding that such corrections are “completely normal” for crypto investors.

Related: Bitcoin Performs Classic Bounce At $40.7K As BTC Price Comes Full Circle From Jan 2021

Krueger also notes that Bitcoin has already pulled back very far from its record highs, in that it is now technically oversold. Therefore, if the CPI reading surprises to the downside, the markets can expect the Bitcoin price to rise and trend for a while.

“On Wednesday we will have US inflation data,” Krueger said, adding:

“I think prices should drop around 41K and 44K until then, with a bullish bias given how strong the declines are to be rejected.”

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