Germany found itself in a tough economic situation, as prolonged war in the East disrupted its supply chain
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This week hasn't been full of game-changing events. Apart from the Reserve Bank of Australia interest rate decision, it's German CPI release on Friday, that makes it more intense. Speaking of risk assets - recent Bitcoin price movement may be called a bit mysterious...
FXMAG.COM: Bitcoin rose after the Fed rate hike and Jerome Powell's press conference, but we could call this price movement a quite "steady" bounce, why is that? Is Bitcoin improving in terms of volatility...?
Dominik Podlaski (Bitget): First of all, traders are always prepared for various outcomes of such market changing events as Jerome Powell's press conference. A 25 bps interest rates hike has been an option with the highest probability of happening, thus it didn’t provoke a lot of volatility in the markets. This change was so called already “priced in”.
Secondly this was literally the best option for Bitcoin and other cryptocurrencies. Raising interest rates by 50 bps would slaughter traditional markets, including S&P 500. In effect Bitcoin would follow them. Similar effects would have leaving interest rates as they were. This would be definitely bullish for DXY and inversely for cryptocurrencies.
Last but not least there is a lot of uncertainty in the markets right now. Therefore even “positive” news are not an impulse for a rally, as investors are cautious. Everyone prefers to stay low instead of too exposed.
(Source: https://www.tradingview.com/chart/BLX/R1mi7bZT-The-future-of-BITCOIN-with-diminishing-returns/)
Bitcoin volatility has been on the decline since the very beginning of its existence. This key trait results from two main factors, besides many other smaller ones. The most important is the theory of diminishing returns. With each consecutive bull run Bitcoin brings less and less ROI - approximately 5 times less each bull market. This has a direct effect in the yearly decrease of volatility. Additionally with every following year of the cryptocurrencies adoption Bitcoin is treated more as an asset for storing the value. Exactly like gold, not a risky object of high ROI as other cryptocurrencies. Speaking of which king
FXMAG.COM: Are you of the opinion German CPI on Friday will confirm an inflation slowdown?
Slowdown? Yes, general slowdown of inflation can be seen all over the markets. Real victory over inflation? Not very likely.
Germany found itself in a tough economic situation, as prolonged war in the East disrupted its supply chain. Both food and energy prices are undermined, because Ukraine and Russia were an important part of their economic strategy. Christian Blindner, Germany’s finance minister, shared his forecast of 2023 CPI to be at 7% average. Analytics consider it optimistic. Therefore there isn’t much space from December CPI reading of 8.6%.
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Despite there are some positive accents at the markets, the high probability of stagflation (extended period of high inflation) is holding investors back. The recession is still looming behind the corner, so the January German CPI reading might be even slightly higher than the December one.
(Source: https://www.bild.de/politik/inland/politik-inland/christian-lindner-fuer-2023-rechnen-wir-mit-7prozent-inflation-82397190.bild.html)
