Cryptocurrency

Bitcoin remains under pressure ahead of CPI data; Michael Burry makes stagflation call

Hull Invest

Analysts expect December 2022 U.S. Consumer Price Index (CPI) to rise 6.5% year-on-year — official Bureau of Labor Statistics data released Jan. 12 — but 2023 2019 could see some upside as an investor Michael Barry expects the CPI to fall this year, but warns that a subsequent pivot in interest rates to stimulate economic activity will trigger a second spike in inflation.

The actual CPI for November 2022 was 7.1%, lower than the predicted 7.3%. The better-than-expected result sent the cryptocurrency’s price skyrocketing during the announcement, with Bitcoin quickly surging to $18,000 at that point.

During this bear market, CPI data and interest rate announcements have had a significant impact on pre-, post- and ongoing crypto price volatility. But to what extent?

The chart below shows about half positive and half negative effects on the Bitcoin price before the CPI announcement. This was also the case during the announcement.

In contrast, the day after the announcement tended to have a negative price impact, perhaps as investors had time to absorb the reality of higher consumer prices and subsequent interest rate hikes.

Bitcoin price percentage change CPI
Source: CryptoSlate.com

Separating the three categories of ‘Previous Day’, ‘During CPI Period’, and ‘Next Day’ into separate percentage change charts better illustrates the aforementioned findings.

Bitcoin Oris percent change before and after
Source: CryptoSlate.com

Based on these patterns, there is no great directional potential before or during the CPI announcement. However, Bitcoin is expected to follow a downward trend after the announcement.

Signs of stagflation intensify

Evidence of stagflation mounts despite current denials of recession, including by the White House redefinition What constitutes a recession.

Stagflation refers to a combination of high inflation and economic stagnation, especially high unemployment. This poses a dilemma for policy makers. Measures to lower inflation could exacerbate unemployment.

Recent articles by Peter Schiff He blamed the current economic predicament on “those pesky checks” that caused inflation which then turned into stagflation. bottom.

Furthermore, citing research by Spanish economist Daniel Lacalle, the article refers to the reality of slowing growth trends, higher taxes and severe inflation, especially when it comes to energy prices.

The last time it was stagflation in the 1970s was when things were this tough. This decade was marked by weak economic growth, high unemployment and double-digit inflation.

Recreation of the 1970s?

Barry Recent tweets:

“Inflation has peaked. We could go into recession, the Fed would cut rates, the government would stimulate, and there would be another spike in inflation.

The scenario Burry described occurred three times in the 1970s. The chart below shows that these three different waves of inflation peaked and then receded over the decade.

That was until Federal Reserve Governor Paul Volcker. 1975 and 1979the surge in consumer prices finally called for funds rates above the controlled CPI.

fed funds and CPI
Source: fred.stlouisfed.org

Taking advantage of this, investor Bill Druckenmiller recently pointed out that once inflation rises above 5%, the Fed’s funding rate will not fall above it.

In the 1970s, with debt to GDP ranging from 30% to 35%, Volcker could afford interest rates as high as 19%. With his debt to GDP now at 120%, setting interest rates higher than his CPI inflation would destroy the economy.

debt to GDP
Source: fred.stlouis.org

The next FOMC meeting is scheduled to end on February 1st. Analysts now support the theory that he is in favor of a 25 basis point rate hike on April 1, and the pace of rate hikes is slowing.

FOMC rate probability
sauce:

Nonetheless, previous comments by the Fed chairman Jerome Powellin which he says rates will “last longer”, suggesting that despite the slowing pace, the final rate has yet to be reached. Similarly, there is no indication how long the Federal Reserve intends to hold rates once they reach their final rate.

Regardless of Burry’s predictions, from a current perspective, the pivot is still far away, putting pressure on risk assets, including Bitcoin, at the moment.

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