Bitcoin (BTC) price rallies are frequently linked to investors’ inflation concerns or data that surpasses expectations for economic growth

Bitcoin (BTC) price rallies are frequently linked to investors’ inflation concerns or data that surpasses expectations for economic growth

Key takeaways:

Bitcoin tends to rally significantly when low leverage meets stronger-than-expected retail sales and hawkish Federal Reserve signals.

In three separate seven-week periods, Bitcoin rose 50% to 84%.

Upcoming speeches from Fed Chair Jerome Powell could benefit Bitcoin price.

Bitcoin (BTC) price rallies are often linked to investors' inflation concerns or data that bodes well for economic growth, but clear signals of an impending rally are rare. However, a combination of three independent events has historically been a strong indicator of BTC price surges of 50% or more.

The scenario unfolds when expectations for US Federal Reserve policy become less bullish, crypto market leverage is low and we see strong retail data to support the bullish momentum. The last occurrence of these three events saw Bitcoin’s price increase from $40,000 to $73,500 over seven weeks in early 2024.

Comparable gains were recorded in early 2023, when the same three drivers aligned, propelling Bitcoin from $16,700 to $25,100 over seven weeks. A third example dates back to July 2021, culminating in a 76% price increase.

After stagnating near $43,000 in December 2023, Bitcoin’s price tested the $48,000 level in early January 2024. The failed breakout was followed by a sharp drop to $37,800 by late January, just as a seven-week bullish trend began. A crucial factor at this stage was the exceptionally low perpetual futures funding rate, sitting at 4% per year.

Other factors impacting the price reversal was US retail sales data for December 2023, released on January 17, 2024, exceeded expectations, rising 0.6% month-over-month compared to the 0.4% forecast and US Federal Reserve Chair Jerome Powell’s January 31, 2024 press conference that, signaled a tighter monetary stance, with no immediate interest rate cuts in sight.

Bitcoin’s price had remained below $18,000 for two months, leading to minimal demand for leveraged long positions, as evidenced by the nearly zero perpetual futures funding rate.

This scenario changed on January 3, 2024, when the funding rate on Binance experienced a 50% increase over four days. This development coincided with stronger-than-expected retail sales data for January 2024, which rose 3% month-over-month, outpacing the 1.9% consensus. Notably, Fed Chair Powell also suggested a tighter monetary policy to combat inflation during his speech at Sveriges Riksbank on January 10, 2024.

From July 20, 2021, to September 7, 2021, Bitcoin's price dropped from $40,000 to less than $30,000 over the previous month, dampening market sentiment. However, the annualized Bitcoin funding rate went from 0% to 37% over two weeks, while US retail sales data for June 2021 surprised economists by increasing 0.6%, whereas the prediction was for a 0.4% decrease.

During this period, Powell's remarks at the Jackson Hole Economic Symposium on August 27, 2021, indicated a potential reduction in central bank asset purchases, a move that was ultimately aimed at curbing inflation.

The common factor linking these substantial rallies is a decrease in expectations for an expansionary Federal Reserve policy and initially low leverage demand from Bitcoin bulls. When these elements converge with strong retail data, they create the perfect storm for a Bitcoin bull run, as traders tend to remain cautious ahead of potential economic downturns.

As we move into the second half of 2024, keeping an eye on Fed Chair Powell's upcoming speech on June 18 following the central bank's interest rate decision will be crucial. Additionally, the Beige Book release on July 16 and the Jackson Hole Economic Symposium starting August 21 are key dates to monitor. Finally, we'll be looking at the US retail sales data for May, set for June 17, and for June, due July 15.