The Bitcoin price has continued to waver following hotter-than-expected interest rate numbers for January. While the consumer price index (CPI) print will dampen hopes for a reduction in interest rates, what are the chances that Bitcoin’s price will overcome this current uncertainty trend?
CPI Numbers Push Bitcoin Below
Last week was a relatively mixed one for the crypto market. Coin prices began the week trending down as investors appeared to have cooled their enthusiasm about the market and even took some profit following weeks of outsized gains. However, on Wednesday, the market roared to life as investor interest peaked, with several significant coins recording double-digit gains.
This rally was short-lived, as the United States government released numbers on the January consumer price index (CPI), showing that general inflation had increased 0.5% month-on-month to begin 2023.
The rise also marked a surge of 6.4% over the past year, although core inflation – which excludes increases in the cost of items like food and energy – increased by 0.2% monthly and 4% yearly simultaneously.
The CPI numbers showed that inflation had increased more than expected in January. And it most likely means that a reduction in interest rates might not be on the cards just yet. Since the CPI numbers for December 2022 were positive and the U.S. economy showed strong growth for the month, investors and analysts have been anticipating interest rate reductions.
For now, it appears that the Federal Reserve might be less than willing to continue down this trajectory, and the crypto market has reacted, with most major coins losing value in relation. Bitcoin, which had briefly topped out above $25,000, quickly saw its price fall below the point as it proved unable to hold on to that psychological support level.
Bitcoin-Stocks Correlation in Focus
While the negative CPI print already affected the value of Bitcoin in the short term, analysts are now looking at other metrics to consider what they could mean for the long-term value of Bitcoin.
One appears to be that Bitcoin’s correlation with stocks and the traditional stock market has been high. Market analyst and contributor Michael van de Poppe tweeted over the weekend that crypto, and stocks have been correcting – a sign he took as having massive opportunities for investors.
Markets correcting as U.S. indices are also correcting at this point.
This means, opportunities!
— Michaël van de Poppe (@CryptoMichNL) February 22, 2023
On the flip side, Dylan LeClair, a senior analyst at UTXO Management, has raised warning signs of a “crisis” between stocks and U.S. bonds, which could affect the crypto market. Nevertheless, he sees low correlation levels between Bitcoin and stocks, which he believes to be positive.
Should Rising Inflation Worry Crypto Investors?
Over the past year, arguably, the biggest issue that crypto investors have had to contend with has been inflation. The U.S. economy has seen rising inflation due to quantitative easing policies dating back to the coronavirus pandemic, and this rising tide has led to a dip in coin prices.
However, it is also worth noting that the state of the market is partly due to the spate of bankruptcies and company implosions that have rocked the market in the past month. From Three Arrows Capital to FTX to possibly the Digital Currency Group (DCG), there is no overstating the impact of these multi-billion-dollar bankruptcies on investor sentiment and confidence.
The Federal Reserve has done a relatively good job of keeping inflation under control, but the crypto industry will also need to adjust if coin prices hope to surge once more.
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