Bitcoin Rally Cools Ahead of CPI Data, Ethereum Network Upgrade

A rally in Bitcoin is cooling as traders await US inflation data and monitor a seminal upgrade of the Ethereum blockchain, events that could stir volatility in cryptocurrency markets.

The largest token rose as much as 3.3% on Monday, briefly scaling $22,000 before falling back to trade little changed as of 1:16 p.m. in Tokyo. Ether along with smaller coins like Cardano and Solana were on the back foot.

Higher-than-expected US inflation on Tuesday could harden expectations for restrictive monetary settings that are anathema for crypto prices. Any bumps in the upgrade later this week of Ethereum -- the most important crypto network commercially -- also have the potential to sow disquiet.

Bitcoin jumped about 10% on Sept. 9 amid a broader embrace of beaten-down assets encouraged by a weaker dollar that hinted at a little less fear in a tough year for global markets.

A blackout period for comments from Federal Reserve officials before the US central bank’s interest-rate decision later this month may be one of the factors helping Bitcoin, according to Tony Sycamore, senior market analyst for City Index Ltd. in Sydney.

“The market knows that it’s got a break from this unrelenting hawkish Fedspeak for a couple of weeks and that the pace of central bank rate hikes is likely to slow,” he said.

Rising borrowing costs alongside blowups at crypto lenders and hedge funds have saddled Bitcoin, Ether and the wider MVIS CryptoCompare Digital Assets 100 Index with losses of more than 50% in 2022.

Ether, the native token for the Ethereum network, is particularly in focus ahead of the latter’s transition to a more energy-efficient blockchain, a process known as the Merge. The crypto community is on alert for any snafus that buffet the many financial applications that rely on the network.

“We continue to be long Ether into the Merge, using dips as buying opportunities,” Sean Farrell, head of digital asset strategy at Fundstrat Global Advisors LLC, wrote in a note. He added that Ether didn’t succumb to a “sell-the-news” drop after three earlier Ethereum upgrades.

The pattern of bets around options on Ether is weighted toward bullish calls, but the picture is more balanced around the Merge date, suggesting hedging in the lead up to the event, according to a note from Genesis Global Trading Inc.