Much to the dismay of the bulls, crypto markets continued their brutal action again on Thursday, with early significant gains more than reversed in a very short period of time.
Having occurred over a period of a few hours instead of yesterday’s few minutes, the scale of today’s reversal was almost as large, along with the leading crypto-bitcoin. falling from a session high of $89,300 to a low of $85,500. At press time, BTC was changing hands at $86,000, down 0.8% over the past 24 hours. The Nasdaq was off session highs by about 2%, but still well ahead with a 1.7% advance.
The early gains came alongside a much colder-than-expected November U.S. Consumer Price Index report, with headline inflation falling to 2.7% from 3% previously. This data was quickly factored into another Federal Reserve rate cut in January, which – all things being equal – would tend to be good for risky assets, including crypto.
Skeptics, however, quickly focused on the aberrant inflation figures. “The major problem was the reduction to zero of landlord rent/rent equivalent (REL) in October,” wrote well-followed economist Omair Sharif. Unless the BLS adjusts, he continued, it will artificially lower the CPI numbers year over year through April.
“This is completely inexcusable,” wrote WSJ’s Nick Timiraos. “The BLS just assumed that rent/REL was zero for October…There is simply no world in which that was a good idea.”
For now, markets appear to agree with the skeptics, with the odds of a January rate cut remaining unchanged from their previous low probability of 24%.
BTC limit, ETH hedge
Traders in the crypto options market appear to be adjusting their expectations, with bitcoin and ether showing divergent sentiments, according to Wintermute data. Bitcoin options activity points to a limited outlook as traders continue to sell downside protection below $85,000 and cap upside exposure above $100,000.
This “indicates confidence in maintaining support and limited expectations for a sustained breakout in the near term,” the market maker’s OTC trading desk wrote in a note.
Ether options, on the other hand, demonstrate less conviction and greater hedging behavior. Support appears to be forming around the $2,700-$2,800 range, but upside calls above $3,100 are being sold aggressively, suggesting traders are looking for protection against the upside.
