As the eyes of the crypto world turn to the U.S. inflation data from Thursday’s July Consumer Price Index (CPI) report, optimists among Bitcoin (BTC) bulls eagerly anticipate further positives. Predictions from economists suggest a continuity of the 0.2% monthly increase observed in June, with yearly growth projected at 3.3%, a slight rise from last year.
As we go back to the peak of headline inflation at 9.1% in June 2022, the significance of core CPI, which eliminates the unpredictable food and energy costs, becomes even more evident. Both June and July are projected to have gains of 0.2% in core CPI. Furthermore, yearly core CPI is expected to decline marginally from 4.8% to 4.7%. As a reminder, core CPI reached its peak at 6.5% in March 2022.
The subsequent changes in inflation in 2022 prompted the U.S. Federal Reserve to set off a series of rate hikes. This move led the fed funds target range from a low 0%-0.25% index to its current range of 5.25%-5.50%. Monitoring the fluctuation in bitcoin prices during this time, we can infer a correlation between the rate hikes and the significant drop in bitcoin’s value, which fell from over $69,000 in late 2021 to close out in 2022 around the $16,000 level.
Bitcoin’s apparent recovery in 2023, albeit modest with an increase of 75%, appears to be influenced by the easing or possible end of Fed’s tightening policy. With Bitcoin trading just below $29,000, it still lingers at nearly 58% off its all-time high.
While Thursday’s positive CPI data might cement this interpretation further, the traders’ current stance doesn’t foresee any further interest rate hikes from the Fed this year. In fact, speculations for 2024 suggest anticipations of rate cuts by the Fed, perhaps as early as February.
While undeniably, this week’s CPI data would probably not dramatically alter the optimistic perspective of Bitcoin in relation to central bank policy, an unsolicited spike in CPI – significantly higher than the forecast – could potentially hamper Bitcoin’s progress. Precisely, there is a lurking worry that surprisingly high inflation could lead to a further hike in interest rates, dampening the spirit of Bitcoin bulls.
Source: Coindesk
