The higher-than-anticipated US core Consumer Price Index (CPI) reading was followed by a decline in Bitcoin (BTC) price as it tumbled almost 1.5% to $56,168 at press time.

US Headline CPI Matches Forecast, Core CPI Exceeds It

US headline CPI, the metric typically used to assess the inflation rate in the country, came in according to expectations at 0.2% month-over-month (MoM), and 2.5% year-over-year (YoY) for August 2024. However, core CPI (MoM) printed 0.3%, slightly higher than the 0.2% forecasted by economists. 

For the uninitiated, the difference between the headline CPI and core CPI is the constituents of the basket of items they assess. While the headline CPI measures all item categories, including housing, transportation, services, medical care, food, and energy, core CPI excludes food and energy prices to give a more stable view of underlying inflation trends.

By removing the price of volatile items from its calculation, core CPI is often considered a more accurate indicator of long-term inflation.

Following the unexpected core CPI print, BTC witnessed a quick decline in price as it fell from around $57,000 to $56,168 at the time of writing. The wider crypto market displayed similar trends as Ethereum (ETH), Binance Coin (BNB), Solana (SOL), and Ripple (XRP), which are down by 2.1%, 1.3%, 4.6%, and 2.4%, respectively.

With the CPI data for August 2024 released, it seems all but certain that the US Federal Reserve (Fed) will begin its rate-cut cycle with a 25 basis points (bps) cut in September. In a note, Capital Economics’ Paul Ashworth said:

On balance, we still think the Fed will begin its rate cutting cycle with a more modest 25 bps cut. The 3.2% annual core CPI was mostly due to a 5.2% increase in shelter prices, while the three-month annualized core CPI rebounded only to 2.1% from a weak 1.6%.

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Indeed, following the CPI data release, the probability of the Fed slashing rates by 25 bps next week has jumped to 83%, per data from CME FedWatch. Assuming the Fed reduces rates by 25 bps, it should instill some confidence in crypto and stock markets, fearing a 50 bps cut could signal the Fed not being fully confident in its ability to tackle inflation.

What Lies Ahead For Bitcoin?

As BTC remains loosely range-bound between $52,000 to $70,000 on the daily chart, analysts are speculating on the future trajectory the leading digital asset’s price could take.

Some analysts opine that BTC’s current price action is reminiscent of a similar price consolidation in 2023. If the same scenario plays out in 2024, we could see a new Bitcoin all-time-high (ATH) price.

It will also be interesting to see the impact of the US Presidential Elections scheduled to happen in November 2024. Interestingly enough, some election-agnostic analysts have stated that no matter who wins the election later this year, BTC is slated to win in the long term.

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At the time of writing, Bitcoin trades at $56,168 while the total cryptocurrency market cap sits at $1.94 trillion, down 2.3% in the past 24 hours.

Cardano dropped 57% when the Federal Reserve cut rates back in 2019. With another rate cut on the horizon, the cryptocurrency faces a similar setup that could bring major downside.

Cardano prepares for September decline

In May 2019, the Federal Reserve initiated its first rate cut, lowering rates from 2.42% to 2.39%. Rates at that time were much lower than today, and the public debt stood at $22 trillion. Today, debt has increased to nearly $35 trillion, and interest rates now stand at 5.33%, more than double the 2019 levels.

When the rates started to fall in 2019, Cardano experienced a sudden drop. After a brief period of recovery, the downtrend continued for months until early 2020. An uptrend emerged later, but the market downturn during the COVID-19 pandemic coincided with further rate cuts. Despite uncertainties around the exact link between rate cuts and crypto declines, Cardano and the broader market saw a clear decrease in value.

A similar scenario could unfold today. Crypto has shown correlations with traditional finance in the past, including during the 2019 rate cut. The Federal Reserve’s upcoming meeting is likely to result in a rate cut based on CME data. If the market follows the 2019 pattern, Cardano could face a multi-month decline, which could last until the end of the year, before recovering in early 2025. A repeat of the previous trend could push Cardano’s price down to around $0.15.

Additionally, September has often proven to be a tough month for both stocks and crypto. In September 2020, during a halving year, Cardano also faced a downtrend. Coupled with the current 10% drop since the start of this month, these factors could drive Cardano toward a deeper fall in the weeks and months ahead below its 2022 support line at $0.2349.

Cardano’s bearish momentum grows with SRSI, MACD, and VRVP

Many traders focus on short-term movements, but stepping back for a longer-term view can give a better sense of the bigger picture. Cardano’s monthly Stochastic RSI (SRSI) and MACD are flashing warning signs that shouldn’t be ignored, and both are painting a rough picture for ADA.

The SRSI tracks momentum by looking at an asset’s price range over time. The scale goes from 0 to 100, with anything below 20 showing oversold conditions. Since March 2024, the SRSI has been sliding, and it’s now closing in on that oversold region.

The MACD, meanwhile, is showing similar bearish vibes. On the monthly chart, the MACD line has already crossed below the signal line, which is a sign of downward pressure. The histogram, which shows the gap between the two lines, is about to flip red, also pointing to a growing bearish momentum.

Alongside the bearish signals from the Stochastic RSI and MACD, the Visible Range Volume Profile (VRVP) adds even more negative pressure to the outlook. The VRVP shows where most trading volumes occurred at various price levels. In Cardano’s case, the volume bars within the current price range are quite thin, which indicates weak support. The biggest volume bar begins at the $0.15 level, suggesting a strong support zone there. Below the current price, there’s a gap in the volume profile, which means if Cardano continues to fall, there’s little trading activity to slow down the drop until it reaches that $0.15 zone.

Is Cardano’s 2022 support line strong enough to hold?

Despite the bearish indicators, a couple of factors could prevent Cardano from dropping sharply. At the moment, the price sits within a macro Fibonacci golden pocket, drawn from the all-time low to the recent high in March 2024. This zone, between $0.2951 and $0.3204, has acted as support for now. However, when looking at other Fibonacci retracements from different points, ADA has already fallen below the 78.6% retracement on every one of them. This could raise doubts about the strength of the current golden pocket, as there’s a possibility it may not hold up in the long term.

A stronger support level, however, lies at $0.2349, a line that was respected during the 2022 bear market. But, with ADA currently around $0.315, a drop to that support would still represent a 25% decline, which would be far from ideal. 

Strategic considerations

In our view, there could be a dead cat bounce before the September 18 Fed meeting. However, after that, ADA is likely to face a 2-3 month downtrend until the Fed slows the pace of its rate cuts. A more cautious strategy would be to wait for ADA to drop below the $0.2951 golden pocket before shorting. This offers a safer entry point compared to shorting immediately right now, as Cardano could see a short-term uptrend while holding above the golden pocket. If the price falls below this level, shorting down to $0.2349 becomes a more calculated move.