Crypto Market Rally Today: Will the Gains Be Short-Lived?

The cryptocurrency market moved higher on Tuesday as Bitcoin reclaimed the $64,000 level following softer-than-expected U.S. inflation data. Ethereum also advanced toward the $1,900 resistance level while several large-cap altcoins posted gains.

Crypto Market Rally Continues After US Inflation Data

Bitcoin and most major cryptocurrencies gained after investors reacted to softer U.S. inflation data, which strengthened expectations that the Federal Reserve may keep interest rates unchanged in the near term.

The CPI dropped from 4.2% in May to 3.5%, much better than the expected 3.8%. At the same time, core inflation, which strips out volatile food and energy prices, dropped from 2.9% to 2.6% on an annualized basis.

The inflation report suggested price pressures continued easing, supporting expectations that monetary policy could become less restrictive if the trend persists. AAA data shows that the average gasoline price has dropped to $3.8590 from $4.07 a month ago.

The report came a day after Christopher Waller, a top Fed official, warned that the Fed would need to hike interest rates if core inflation rose at a faster pace than expected. His statement was important because he is one of the bank’s doves, a move that made him a contender to replace Jerome Powell.

The inflation data means that the Federal Reserve may not hike interest rates in the upcoming meeting. That’s why US bond yields pulled back, with the two-year dropped to 4.15% from the intraday high of 4.30%. According to Polymarket, odds of a rate hike dropped to 53% from an intraday high of 70%.

Fed cut odds | Source: Polymarket

Crypto Prices Face Substantial Risks Ahead

Still, some potential risks will hurt the crypto market. The most important one is that the US and Iran have restarted their war, which has pushed energy prices higher. Brent and the West Texas Intermediate (WTI) jumped to $87 and $80, respectively.

Oil prices may continue rising in the near term since the US has started blockading the Strait. Also, crude oil inventories remain substantially lower than where they were a few months ago. In fact, when Trump was making his Memorandum of Understanding (MoU) statement, he said that the US had four weeks of oil in its inventories remaining.

A rebound in oil prices will lead to higher inflation, raising the possibility that the Federal Reserve will hike interest rates later this year.

The other risk is that American investors have started selling their crypto ETFs. Spot Bitcoin ETFs suffered $424 million in outflows on Monday, bringing this month’s outflows to $300 million. Ethereum ETFs shed over $15 million worth of assets.

Some treasury companies will likely continue selling their coins. Strategy has already dumped Bitcoin worth over $200 million, while Empery sold 1,400 coins.

Disclaimer: This article is for informational purposes only and does not constitute financial or investment advice. Cryptocurrency markets remain highly volatile, and macroeconomic developments can rapidly change market conditions. Readers should conduct their own research before making investment decisions.

Bitcoin Price Technicals Show a Recovery is Not Confirmed

Further, technicals suggest Bitcoin remains in a bear market despite today’s rebound. It is yet to move above the 100-day moving average and the descending trendline that connects the highest levels since June 15.

These technicals suggest that the coin may drop further in the near term. If this happens, Bitcoin may resume the downtrend and retest the lowest point this year. Such a move will lead to more weakness in the crypto market since BTC normally sets the tone.