The cryptocurrency market experienced significant growth over the past 24 hours, with traders eagerly awaiting the latest U.S. inflation data and anticipating no monetary policy action. The combined market capitalization of cryptocurrencies reached a staggering $1.035 trillion, representing a 1.58% increase. Major cryptocurrencies like Bitcoin, Ether, and Solana all contributed to this surge.

Positive Reaction to U.S. Consumer Price Index Report

Crypto investors found encouragement in the U.S. consumer price index (CPI) report released on September 13. The report revealed a 0.6% increase in the CPI for August, the highest monthly rise in over a year. The spike was primarily driven by surging gasoline prices, which accounted for more than half of the increase. However, core prices, excluding food and energy costs, rose by a modest 0.3%, slightly exceeding the estimated 0.2%. Overall, core inflation remained on a downward trajectory towards the Federal Reserve’s preferred target of 2%.

The Relationship Between Core Inflation and Rate Hike Speculation

The decline in core inflation coincides with derivative market traders adjusting their projections for a potential rate hike pause in September. The probability of the target rate remaining unchanged during the Federal Reserve’s September 19-20 meeting has jumped from 93% to 97% in just one week. Historically, stabilizing or lowering interest rates has signaled a bullish sentiment among crypto investors, which could explain the recent market rally.

The recent court ruling regarding the defunct crypto exchange FTX also contributed to the positive sentiment among crypto investors. Judge John Dorse approved the sale of FTX’s crypto assets, while restricting the sale of Bitcoin, Ethereum, and other associated assets. With these cryptocurrencies comprising approximately 70% of the total market valuation, concerns over potential selling pressure of these assets were alleviated. The ruling also imposed a limitation on the sales of remaining crypto holdings, allowing a maximum of $50 million per week and requiring written notice beforehand.

Debunking Fear-Driven Theories of Selloffs

Data researchers at Messari debunked theories that FTX sales would trigger massive selloffs in the crypto market. They emphasized that the primary holding of FTX, Solana (SOL), is subject to vesting schedules. Within the past 24 hours, SOL demonstrated strong performance, surging by over 4% and contributing to the overall market upswing.

Short-Term Rebound and Buying Signals

The recent gains in the cryptocurrency market over the past 24 hours are part of a short-term rebound that initiated on September 11. During this period, the market’s daily relative strength index (RSI) dropped to 30, which is considered an “oversold” threshold by traditional analysts. Historically, an RSI of 30 or below has been viewed as a buy signal in the crypto market. This strategy has consistently played out this year.

While the current rebound in the crypto market is encouraging, it does not necessarily indicate a prolonged buying trend. The market remains at risk of bearish continuation as long as it remains below its key exponential moving averages (EMA). The 50-day EMA, denoted by the red wave, is positioned near $1.08 trillion, while the 200-day EMA, represented by the blue wave, is near $1.06 trillion. Additionally, the market has faced resistance from a descending trendline since July 2023, inhibiting significant upside movement. As a result, the ongoing rebound may persist until the market valuation reaches the trendline or its 50-day EMA, aligning at $1.04 trillion.

Potential Pullback and Market Correction

However, investors should remain cautious as a pullback may occur either before or after testing the trendline-EMA confluence. Such a correction could result in a decline in the crypto market valuation to the range of $980-995 billion, indicated by the red area on the chart. This potential dip should be anticipated in the fourth quarter.

The cryptocurrency market has experienced substantial growth in response to the anticipated absence of monetary policy action after the release of the U.S. inflation data. While positive factors such as the U.S. CPI report, the FTX court ruling, and the short-term rebound have contributed to this surge, caution is advised due to the market’s resistance levels and the potential for a pullback in the near future.

Analysis

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