Volatility Is Back: Where Will Bitcoin Bottom?

September’s CPI release comes in hotter than expected and sparks one of the most volatile days we’ve seen yet. The market walks a thin line between a face ripping rally and another leg down.

Relevant Past Articles: 

• 7/13/22 - Inflation: Enemy Number One

• 7/19/22 - Bitcoin Short Sellers Get Squeezed

• 7/20/22 - Caution: Bear Market Rallies

• 10/12/22 - Preparing For Tomorrow’s CPI Reading: Market Braces For Volatility, Bitcoin Open Interest Surges

CPI Volatility Doesn’t Disappoint 

Yesterday we highlighted a potential for CPI to surprise to the upside and bring more volatility — and that’s exactly what we got today and more. We won’t cover the components that drove the surprise in detail since we highlighted much of that yesterday, but the key takeaway is that Core CPI came in hotter than expected at 6.6% year-over-year and 0.4% month-over-month with shelter (rent, housing components, etc) and medical services as key drivers. This is the fastest rate of change in annual headline Core CPI since 1982. To compare the various components over the last three months, check out this chart. 

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Bonus Content: Bitcoin Magazine PRO Head of Market Research Dylan LeClair hosted a panel at Bitcoin Amsterdam with Greg Foss, Jeff Booth, Niko Jilch & Prince Phillip of Serbia: “Has Bitcoin’s Inflation Hedge Narrative Failed?”

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The markets reacted with some extreme volatility as a result. First, we saw a major sell-off in equities, bitcoin and bonds in response to the release. Then we saw late shorts get burned as selling aggression ramped up into the bottom, but ultimately we got a fairly calm close. Barring whatever other factors driving the market higher after the initial move, this is a clear sign of an unhealthy, illiquid and uncertain market facing extreme (fatter) tail risks on both sides. Vicious rallies can occur at any time and so can another leg down. The S&P 500 saw a 5.31% upward move from the wick bottom to the top while bitcoin increased 7.06% in a similar move. 

As for the rates, the latest implied federal funds rate from the eurodollar market shows a peak just above 5% in March 2023 before any rate cuts happen at the end of the year. 

Where’s The Bitcoin Price Low? 

With a fall to $18,000 inching closer and bitcoin facing risks of new year-to-date lows, it’s worth taking a look at a few key bottom price levels to gauge where the price may end up. First, let’s look at the fixed volume range profile of bitcoin since the December 2018 bottom of last cycle.