Key Points
- Bitcoin is reflecting cautious equity market trends ahead of the US Consumer Price Index (CPI) report and Federal Reserve rate announcement.
- U.S. equity markets and Bitcoin are showing a higher correlation with risk-assets, which may result in a risk-off sentiment in the Bitcoin market.
Bitcoin is currently moving in line with cautious equity markets in anticipation of the upcoming U.S. Consumer Price Index (CPI) report and a Federal Reserve rate announcement.
Investors are of the belief that the U.S. Federal Reserve has limited room to move, especially after the significantly higher May payrolls reduced the likelihood of the central bank’s first rate cut in September.
Bitcoin’s Correlation with Equities
According to the CME’s FedWatch tool, interest rate traders speculate that the Fed may maintain rates until November. The tool suggests a 47% chance that the Fed will keep the rates at their current levels during the Federal Open Market Committee (FOMC) meeting in September.
U.S. stock futures experienced a slight decrease ahead of the latest CPI inflation report and June FOMC meeting. Dow Jones Industrial Average futures fell by 0.38%, and S&P 500 futures were down by 0.23% in pre-market trading.
Major European and UK equity indices were also in the red. For instance, in London, the FTSE 100 recorded a 60.90-point decrease to 8,167.58 during mid-day trading.
Bitcoin’s Performance
Bitcoin, the world’s largest digital asset by market cap, also declined in sync with the depressed equity markets. In the past day, it decreased by approximately 3.7% and was trading for $66,797 at 7:12 a.m. ET.
Deribit CEO Luuk Strijers noted that Bitcoin is currently showing a higher-than-usual correlation with risk-assets, including gold. As a result of this correlation, the Bitcoin market may exhibit a risk-off sentiment and increased caution ahead of the U.S. inflation numbers and the FOMC meeting.
“Traders are likely to be more conservative, potentially reducing exposure or using option strategies to hedge until there is more clarity on the economic outlook. Implied Volatility has dropped across the curve for Bitcoin and ether. Despite this short-term uncertainty, the basis yields and call skew remains high, for all listed expirities,” Strijers stated.