- Bitcoin price has dropped in the past four days straight.
- US consumer price index surged to the highest level since 1981.
Bitcoin price crashed for the fourth straight days as investors reflected on the latest American consumer inflation data. The BTC/USD pair tumbled to a low of 29,600, which was the lowest level since June 7th. It has fallen by more than 57% from the highest level in November last year.
US consumer inflation data
In making the case for Bitcoin, many proponents argue that it is a good hedge against inflation. However, in the past few months, Bitcoin has failed this test as America’s inflation has surged.
Data published by the Bureau of Labor Statistics showed that the headline consumer inflation in the US jumped to the highest level since December 1981. Precisely, it rose from 8.3% in April to 8.6% in May this year. This increase was higher than the median estimate of 8.1%.
A closer look shows that the prices of most items jumped. Gasoline prices have rose close to their all-time high of $5 a gallon. Meat prices rose by 12% in May while eggs, fish, milk, and coffee rose by 32%, 12%, 15.9%, and 15.3%, respectively.
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Analysts believe that the current inflation pace will continue in the coming months considering that the war in Ukraine is continuing. This war has disrupted the energy and food market, with the cost of fertilizer rising to record highs.
There are two main reasons why Bitcoin has failed in its role as an inflation hedge. First, the Federal Reserve has responded to this inflation story by delivering multiple hikes and starting quantitative tightening. Historically, risky assets tend to underperform in a period of high interest rates.
Second, inflation has led to a less dynamic cryptocurrency market. These days, instead of spending money on Bitcoin, most people are trying to save and buy their basic needs.
Bitcoin price prediction
The daily chart shows that the BTC price has been in a downward trend for months. It has been in a tight range since May this year. Along the way, the price moved below the 25-day and 50-day moving averages while the MACD has been rising.
The pair will likely have a bearish breakout since it has formed a bearish flag pattern. If this happens, Bitcoin price could have a bearish breakout in the coming weeks. If this happens, the next key level to watch will be at $25,604. A move above the resistance level at $31,000 will invalidate the bearish view.
