Bitcoin Drops 3% After Rally, Traders De-risk Ahead of CPI

Bitcoin (BTC) experienced a brief price correction on May 12, dropping to $102,388 after reaching an intraday high of $105,819 during the US trading session. This correction occurred despite positive news, including progress in US-China trade talks and announcements from major companies about their Bitcoin holdings. The tentative trade deal between the US and China led to a significant rally in US equity futures markets, which translated into a 1,000-point gain in the Dow at the opening bell.

On the same day, Strategy CEO Michael Saylor announced that the company had acquired 13,390 Bitcoin, bringing its total balance to 568,840 BTC. Additionally, shares of healthcare company KindlyMD surged up to 600% after announcing a merger with Nakamoto Holdings, a Bitcoin investment company. These developments followed a similar trajectory to the previous month, where frequent Bitcoin treasury creation announcements were made by various companies.

Despite these positive developments, data from Glassnode suggests that Bitcoin's price could be in for a brief period of consolidation after gaining 9% in the last week. The onchain analytics firm warned that while new demand for Bitcoin remains strong, momentum buyers are weak, and profit takers are rising. This could lead to consolidation if fresh inflows slow down.

From a trader's perspective, the selling could be attributed to possible de-risking ahead of the May 13 Consumer Price Index (CPI) inflation report. The view is that the Trump trade deal with China is now priced in after BTC failed to rally and hold above $104,000 on such momentous news. Leading into the trade war news, the US Dollar Index (DXY) rallied, and stock indexes soared. Bitcoin's failure to break and hold $104,000 to $105,000 prior to stock futures opening and then its inability to follow equities opening bell gains in the NY session suggests that some traders elected to close profitable longs ahead of tomorrow’s CPI or before the current bid appetite shifts to lower price levels.

Spot purchasing played a significant role in last week’s Bitcoin price rally, and the May 12 announcement from Strategy and spot BTC ETF inflows of the past 7 days raises more immediate concerns of whether the type of buying appetite seen since late April will spill over into another week. Considering the accelerating pace of Bitcoin adoption within traditional finance and the rapidly improving crypto regulatory environment, the current price action appears to be a short-term technical correction. Perhaps, dependent upon tomorrow’s CPI print, spot and margin longs will return in force once the market digests the details of the report.