Market expectations and market rallies often move hand in hand.
Keeping this in mind, the latest U.S. CPI data should have ideally triggered a stronger rally, especially with crypto consolidating in a tight range for over 6-7 weeks now.
Yet, the reaction was pretty muted, with Bitcoin [BTC] up just 0.5% and still capped below the $65k resistance. This came after U.S. CPI printed a 3.4% for July, exactly in line with expectations.
Further adding to the dovish expectations, market odds of a September rate hike fell to 34% after the U.S. CPI data was released.
This is the lowest probability of a September rate hike since the 17th of July, with odds now half of what they were on the 27th. In essence, rate hike expectations have cooled significantly.
Maksym Sakharov, co-founder and CEO of the debanking infrastructure provider WeFi, told AMBCrypto,
The softer print is welcome since the Fed will have more breathing room for deciding on a rate hike, but one release will not settle the argument over the inflation path due to pre-built volatility.
However, these macro tailwinds might just be the tip of the iceberg.
Across social media, the narrative around a “Bitcoin bottom” and a potential “short squeeze” is heating up. From BTC’s technical setup, these narratives aren’t completely far-fetched either.
Echoing a similar narrative, Matt Mena, Senior Crypto Research Strategist at 21Shares, told AMBCrypto,
Bitcoin is testing support above $64k, retesting the level in the last few minutes after CPI came in line with expectations. With the odds of a September hike now down 25% MoM, this could be the relief Bitcoin needed to break $64k and push toward $66k.
Bitcoin continues to trade in a choppy range, with short liquidity building up and over $2.5 billion more shorts than longs. At the same time, on-chain signals are starting to point toward a stronger bottom setup.
So, for the market to rally, analysts expect Bitcoin may first need to flush short liquidity before gaining enough momentum for a breakout. Notably, this is where the lack of momentum after the U.S. CPI release begins to add weight.
The data came in line with expectations, but it still wasn’t enough to trigger the momentum needed for a breakout.
Naturally, this raises the question: Are the “bottom” and “short squeeze” narratives being overhyped, with the actual bottom still further away?
Bitcoin fails to rally on soft U.S. CPI as capitulation risk builds
The entire Bitcoin bottom thesis isn’t coming out of nowhere.
From an on-chain perspective, BTC has dropped into its “cost of production” zone, showing that BTC is trading closer to the level where miner profitability starts getting squeezed.
Historically, this zone has acted as a key trade of support and often signals that BTC is getting closer to a potential bottom. However, Kalshi traders are forecasting that BTC could close the month below $60k.
With ETF flows dominated by outflows, this further highlights the lack of buying momentum in the market despite the U.S. CPI release.
Notably, the stakes are getting higher as long-term holders’ unrealized losses continue to pile up. As the chart below highlights, BTC LTHs are now carrying deeper unrealized losses than the broader market. However, capitulation still hasn’t arrived.
According to AMBCrypto, this puts the entire BTC bottom narrative under scrutiny.
With accumulation signals still lacking, ETF outflows picking up, and BTC failing to rally after the U.S. CPI release, the market is starting to question the entire Bitcoin bottom thesis.
This is putting even more pressure on BTC’s LTH cohort. As their patience wears thin, capitulation could kick in sooner than expected.
