Here’s why Bitcoin traders shouldn’t overanalyze US inflation data
Analysts and pundits will scramble to find some angle to explain intra-day price action whenever important economic numbers are published and this practice is commonplace in the crypto sector.
When the United States Bureau of Labor Statistics reported a 7.5% increase in the Consumer Price Index (CPI) on Feb. 10, traders rushed to find some connection to the crypto price action. However, historical correlation data shows investors should actually closely scrutinize whether there is even a relation between Bitcoin (BTC) and major economic indicators.
General investment advice would suggest that traders ignore the intraday movements, especially considering that most assets do not trade on a 24-hours basis.
More importantly, Bitcoin’s order book depth pales in comparison to gold, WTI and the S&P 500 futures. Even if one aggregates stablecoin trading, Bitcoin’s 7-day average volume is $7 billion, whereas the three largest S&P 500 exchange-traded funds handle $54 billion.
In short, a large order flow from a single entity could easily distort the cryptocurrency market in the short term, but the impact on WTI oil, the S&P 500 and gold tends to be smaller.
Bitcoin price dipped to $43,200 after the 7.5% increase in the U.S. consumer price index was released on Feb. 10, leading reporters at CNBC to correlate the two events.
Bitcoin dips slightly as 10-year Treasury yield tops 2% on hotter-than-expected inflation report https://t.co/bI8NzMQRPD
That statement correctly assessed the market conditions at that time, but one should use a longer time frame when analyzing economic data. Furthermore, there’s the possibility that Bitcoin holds no relevant price correlation, a hypothesis that also needs testing.
A comparative long-term chart
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