Bitcoin price bounced back above the psychologically crucial level of $20,000 on Wednesday after momentarily dropping below it in the previous session. The plunge was a knee-jerk reaction to the higher-than-expected US CPI figures. In the broader cryptocurrency market, the macroeconomic factors appear to be overshadowing the Merge.
Bitcoin price traded below $20,500 on Wednesday as the market digests the US inflation data released on Tuesday. The CPI figures hardened bets that the Federal Reserve will further tighten its monetary policy as it strives to deal with high inflation. Ethereum, the second-largest crypto by means of market capitalization, also remained below the support-turn-resistance level of $1,635 ahead of the Merge.
Indeed, the pressure is observable in all the major risk assets. For instance, the US stock market plunged with the Dow Jones index dropping close to the critical support level of $31,000 earlier on Wednesday. The tech-heavy NASDAQ also dropped to a one-week low at $61.52.In recent months, cryptocurrencies have been moving in tandem with the US stock market.
While US inflation and broader macroeconomic environment is the key driver of bitcoin price, investors are also keen on the Merge. The highly anticipated upgrade of the Ethereum blockchain is due sometime between Wednesday and Thursday. The shift from proof of work to the proof of stake model is meant to reduce the blockchain’s energy consumption significantly.
Analysts are largely optimistic that the upgrade will be efficient. However, a hitch in the shift could have a major impact on Bitcoin price and the broader crypto market. This is largely because of the numerous financial services that are built on the Ethereum blockchain.