Bitcoin: How ‘Retail Sales’ can be a Catalyst for recovery post CPI numbers

Biraajmaan Tamuly
Source: Unsplash

The cryptocurrency market faced another macro-economic data release. The U.S Consumer Price Index(CPI) figures for June 2022 are out, and the numbers were not favorable. The CPI While the expected YoY inflation was around 8.8%, reports indicated a 9.1% rise, which will yet another 40-year high in back-to-back months. Bitcoin and the collective crypto market faced a short-term correction.

Another round of Bitcoin tumble?

Back in June 2022, May’s CPI data was considered one of the primary catalysts for Bitcoin dropping below $30,000. Yesterday, a similar situation temporarily took place. Following the data release, Bitcoin fell below $18,000 and the market expected more corrections. However, at press time, it clawed back above $20,000.

The release of CPI numbers also caused a bit of a shift in the on-chain data. According to Cryptoquant, Bitcoin exchange inflows registered a minor uptick, as observed in the charts. Bitcoin moving back into the exchanges usually increases selling pressure for the asset.

Now, with rising inflation, speculations were that the Federal Reserve will tighten monetary conditions even further to curb inflation. However, energy prices were slowly declining, so there was an argument that BTC might receive a relief rally based on some of these other factors. There was an indirect correlation, and now another report coming out on Friday might strengthen the chances of a Bitcoin recovery.

Retail Sales Report; Catalyst back to recovery?

The CPI data and Federal Reserve interest data have taken a toll on the market, but these were always expected since the beginning of the year. In fairness, the market reacted in a way that was expected after a massive bullish rally in 2020-2021. Now, a report which is indicative of cooling consumer demand is Retail sales.

Source: Ycharts

Now, Retail sales is a good metric to evaluate the pulse of the economy and they can be utilized to understand market expansion or contraction. Now, rising Retail figures during a booming economy is a good sign. It infers that shareholders of the retail companies are registering higher earnings. And lower retail figures indicate a contracting economy.

However, it also translated to a decrease in inflation. Now that comes across as contradictory to the above narrative. As presented in the chart, Retail Sales faced a 0.8% decline in MoM from May to June. Now the projections from June to July come out tomorrow, and another decline would mean that people are spending less during a tumultuous time. While there isn’t a direct correlation with Bitcoin here, it could underline that inflation rates might peak sooner than later.

Jonathan Silver, CEO of Affinity Solutions told this media outlet,

“The job market remains strong, which is putting money in people’s pockets; however, price increases are still outpacing people’s paychecks. Hopefully, this trend will reverse itself as inflation reaches its peak and begins to dissipate. Our purchase spending data suggests that this is the direction we are headed.” 

At press time, Bitcoin is actually on a recovery path and it is currently above yesterday’s high. While it is not a confirmation of a reversal, the release of CPI data might not have been as bearish for Bitcoin as expected.