- The crypto market rally may be at risk amid the rising inflation risk.
- There is a risk that crypto investors will start to rotate from crypto to stocks.
- Bitcoin has formed a rising wedge pattern, pointing to a reversal.
A crypto market rally continued on Friday, with tokens like Hyperliquid, XDC Network, Flare, and Quant being the top gainers. Bitcoin price held steady above $80,000, while the market capitalization of all tokens jumped to over $2.68 trillion. Still, there are substantial risks that may derail the ongoing crypto rally.
Crypto Market Rally Facing US Inflation Risk
The ongoing crypto rally is facing a major inflation risk in the United States. Data released on Tuesday showed that the headline Consumer Price Index (CPI) jumped to 3.8% in April this year. Similarly, the Producer Price Index (PPI) soared to a multi-year high of 6.0%.
There are no signs that inflation will slow any time soon as energy prices continue to rise. For example, data reveals that the average gasoline price has jumped to $4.5. Other prices may continue to rise ahead of the upcoming World Cup event in the US.
Therefore, there is a likelihood that inflation will remain at an elevated level in the foreseeable future, making it hard for the Federal Reserve to cut interest rates. Indeed, Polymarket data shows that participants don’t expect the Fed to cut rates this year. In a recent statement, Goldman Sachs analysts predicted that the bank will cut rates in December.
Bitcoin and other altcoins normally do well when the Federal Reserve is cutting interest rates.
READ MORE: Cheap NVIDIA Stock Alert: Rare Chart Pattern Points to a $6.30 Trillion Market Cap Breakout
Crypto Rally Faces Stock Market Risk
The other main risk to is the ongoing stock market rally, with the S&P 500 and the Nasdaq 100 indices remaining at their all-time highs. These indices have soared, while most altcoins remains in a bear market after falling by over 20% from their all-time highs.
The main risk here is that investors may start to move from the struggling crypto market to the stock market. Indeed, data shows that top stock market ETFs like the Vanguard S&P 500 (VOO), SPYM, and QQQ have added billions of dollars this year. This is a sign that investors are embracing the stock market at the expense of cryptocurrencies.
Bitcoin Price Technical Analysis Points to Exhaustion
Meanwhile, there are signs that the Bitcoin price is showing exhaustion. The daily chart reveals that the coin has formed a rising wedge pattern, which is made up of two ascending and converging trendlines. It has already retested the lower side of the wedge, completing the break-and-retest pattern.
Bitcoin price has also failed to break the 200-day Exponential Moving Average (EMA). At the same time, the Average Directional Index (ADX) has stalled, a sign that the trend is losing momentum.
Therefore, there is a likelihood that the coin will have a strong bearish breakout in the near term. If this happens, the coin may drop to the next key support level at $70,000. Such a move would lead to more downside in the crypto industry.
US-Iran War Restart
There is also a risk that the US and Iran will move back to combat, which explains why crude oil prices have remained at an elevated level. In a statement earlier this week, Donald Trump noted that the ceasefire with Iran was on life support.
As a result, Trump may decide to restart the war to push Iran to the negotiating table. Such a move would lead to more volatility in the market, leading to a stock and crypto market pullback.
Separately, there is a likelihood that crypto investors will sell the CLARITY Act passing news. Bitcoin and most altcoins jumped after the Senate Banking Committee voted for the CLARITY Act. As a result, they may drop once the CLARITY Act becomes law.
READ MORE: Venice Token Price: Here’s Why this AI Coin is Crashing Today
