In the world of cryptocurrencies, volatility is often the name of the game. Over the past few days, the Consumer Price Index (CPI), a key volatility catalyst for risk assets, took center stage in its potential to influence Bitcoin’s (BTC) price. Prior to the CPI data releas...
In the world of cryptocurrencies, volatility is often the name of the game. Over the past few days, the Consumer Price Index (CPI), a key volatility catalyst for risk assets, took center stage in its potential to influence Bitcoin’s (BTC) price.
Prior to the CPI data release, financial commentator Tedtalksmacro predicted a forthcoming drop in inflation. In a YouTube analysis on May 9, he stated, “We’re likely to see a gradual decline, and actually a pretty steep decline, in inflation.”
His analysis was supported by Cleveland Fed Inflation Forecast and ‘Trueflation,’ an unofficial leading indicator for inflation trends.
Tedtalksmacro then outlined potential Bitcoin price changes relative to various possible CPI figures, as per probabilities indicated by JPMorgan Chase.
A CPI above 5.5% held a 4% probability of pushing BTC price to $25,000. On the other hand, a CPI of 4.5% or lower, although deemed a less likely scenario with only a 1% probability, could elevate BTC prices above $30,000.
CPI gameplan for #BitcoinAbove 5.5% –> $25,000 (4% probability)
5.3% to 5.5%–> $26,500 (25% probability)
5.0% to 5.2% –> $28,500 (50% probability)
4.7% to 4.9% –> $29,000 (20% probability)
4.5% or lower –> $30,000+ (1% probability)
*Probabilities according to JPMorgan
— tedtalksmacro (@tedtalksmacro) May 10, 2023
At the time, the CME Group’s FedWatch Tool reported an 80% market expectation for the Federal Reserve to pause interest rate hikes in June.
Actual CPI data release and its effect on BTC price
However, the actual CPI data released by the Bureau of Labor Statistics (BLS) on Wednesday morning told a slightly different story. The annual U.S. inflation rate slowed to 4.9% in April from 5.0% in March, which was in line with economists’ forecasts.
Following the news, Bitcoin‘s price saw a modest increase of over 1% to just above $28,000.
The core CPI, which excludes food and energy costs, rose by 0.40% in April, matching forecasts and reflecting the same advance as in March. The annual core CPI rate in April was 5.5%, again in line with forecasts and slightly lower than March’s 5.6%.
This report came as a relief to many traders, who are keeping a close eye on inflation, as it’s viewed as a key factor that drives volatility in risk assets.
The U.S. Federal Reserve’s Federal Open Market Committee (FOMC) had hinted at a pause in its historic run of rate increases during its last meeting in early May. This swift pace of rate hikes, which took the benchmark fed funds rate from about 0% in early 2022 to the current targeted range of 5.0%-5.25%, has yet to bring inflation down to the Fed’s 2% target.
This morning’s slight moderation in inflation may provide the Fed with room for an easier monetary policy, a move traders are currently betting on. Following the CPI data release, the U.S. 10-year Treasury yield has decreased seven basis points to 3.45%, and the 2-year nine basis points to 3.94%.