Understanding BTC and CPI & M2
For March's CPI, it is a great number but you may get a very confusing price reaction: spike up and went down again. I believe this has a positive effect on BTC but not enough to cause it to explode yet. It works in a way that BTC will hold around 28k - 30k. If you want to know more about how I think of the relationship between BTC and CPI+M2 please read below.
I think CPI and M2 affect the value of BTC as a macro factor for sure, but we must acknowledge the fact that most institution investors still view it as a risky asset with high volatility. When there was a high M2 supply in the system, institutions have capital to increase risk in risky assets with high price volatility as you may saw in 2021. (you may find this correlation elsewhere in some researches). Currently, it is still far from that as CPI is still 5% not below 2%.
However, you may get confused on how BTC reacts to "CPI". We know from the data and characteristics of BTC that it is an inflation hedge. It should negatively correlated with high inflation but why in 2022 bear market it did not though statistic shown otherwise.
The answer to the question, at least in my point of view, is that BTC fell like Tech stock during an intense rising inflation in 2022 because the institution that started to enter into BTC during 2021 are necessary to reduce their exposure. This is because in 2021, they came with the reason that "it has higher upside and possible growth than Tech stock" that were similarly categorized as "risky asset". BTC was then a better option for them. Reasons and ideas of buying BTC as a hedging asset for them came later.
In the future, if BTC has a larger market cap which means less volatility. I think the characteristics of Bitcoin being an inflation hedge will shine more and M2 circulation will have less effect. However I still think the next bull run will still mostly exploded by M2 circulation after the CPI reduced to below 2%.
For March's CPI, it is a great number but you may get a very confusing price reaction: spike up and went down again. From all the reasons I stated above, I believe this has a positive effect on BTC but not enough to cause it to explode yet. It works in a way that BTC will hold around 28k - 30k or sustaining the current uptrend. From the TA perspective, I think there is a short term correction await just because certain people are taking part of the profit or institutions reduce their exposure because surely next interest rate hike will be harsher. Rising interest rate does hurt their financial capacity and debt.
I think CPI and M2 affect the value of BTC as a macro factor for sure, but we must acknowledge the fact that most institution investors still view it as a risky asset with high volatility. When there was a high M2 supply in the system, institutions have capital to increase risk in risky assets with high price volatility as you may saw in 2021. (you may find this correlation elsewhere in some researches). Currently, it is still far from that as CPI is still 5% not below 2%.
However, you may get confused on how BTC reacts to "CPI". We know from the data and characteristics of BTC that it is an inflation hedge. It should negatively correlated with high inflation but why in 2022 bear market it did not though statistic shown otherwise.
The answer to the question, at least in my point of view, is that BTC fell like Tech stock during an intense rising inflation in 2022 because the institution that started to enter into BTC during 2021 are necessary to reduce their exposure. This is because in 2021, they came with the reason that "it has higher upside and possible growth than Tech stock" that were similarly categorized as "risky asset". BTC was then a better option for them. Reasons and ideas of buying BTC as a hedging asset for them came later.
In the future, if BTC has a larger market cap which means less volatility. I think the characteristics of Bitcoin being an inflation hedge will shine more and M2 circulation will have less effect. However I still think the next bull run will still mostly exploded by M2 circulation after the CPI reduced to below 2%.
For March's CPI, it is a great number but you may get a very confusing price reaction: spike up and went down again. From all the reasons I stated above, I believe this has a positive effect on BTC but not enough to cause it to explode yet. It works in a way that BTC will hold around 28k - 30k or sustaining the current uptrend. From the TA perspective, I think there is a short term correction await just because certain people are taking part of the profit or institutions reduce their exposure because surely next interest rate hike will be harsher. Rising interest rate does hurt their financial capacity and debt.
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