Bitcoin Holds Steady Despite US Inflation Data
The crypto market remained unaffected by the hotter-than-expected US Consumer Price Index (CPI) inflation numbers. Bitcoin (BTC) was trading just below $26,700, slightly above its 50-Day Moving Average (DMA). Although it had a negative bias, the cryptocurrency only saw a 0.7% drop for the day.
Bitcoin has been trading with a negative bias since breaking its short-term uptrend earlier this week. The recent CPI report revealed headline inflation at 0.4% MoM and 3.7% YoY, surpassing economists’ expectations by 0.1% in both cases.
Core CPI, which is closely monitored by the US Federal Reserve, matched expectations at 0.3% MoM and 4.1% YoY. Despite the higher-than-expected headline reading, the market’s reaction was muted due to a surprise increase in rental costs.
Economists believe that the surge in rental costs will decrease in the coming months as it contradicts independent surveys indicating falling rental costs.
Implications for the Fed
The core inflation rate of 0.3% MoM and 4.1% suggests that the Federal Reserve still has work to do in terms of bringing inflation back to its 2% target. However, with interest rates already high at 5.25-5.5%, significantly above inflation, the Fed will likely proceed with caution regarding further tightening.
Moreover, mortgage rates are at their highest in 23 years and credit card borrowing costs are at all-time highs, suggesting that the Fed may have already done enough tightening measures.
The possibility of a rate hike by December remains uncertain as Fed officials emphasize the importance of the increase in Treasury yields, which tighten financial conditions and reduce the need for another rate hike.
The US 10-year yield recently hit multi-decade highs near 4.90%. The implied odds of another 25 bps rate hike this year were around 31%, according to the CME’s Fed Watch Tool.
Impact on Crypto
While the likelihood of another interest rate hike by the Federal Reserve is uncertain, it is clear that the end of the tightening cycle is near. The Fed has projected two interest rate cuts in 2024, indicating a shift towards easing financial conditions.
This macro narrative suggests that crypto could experience a tailwind next year, similar to what happened in 2019 when the Fed signaled a pause in interest rate hikes. During that time, Bitcoin and other cryptocurrencies saw significant rallies.
In addition to these macro factors, bullish catalysts such as the upcoming Bitcoin halving and potential approval of spot Bitcoin ETFs in the US could further fuel the positive narrative for crypto.
Hot Take: Crypto Set to Benefit from Shifting Macro Environment
The crypto market remained resilient despite higher-than-expected US inflation data. Bitcoin maintained its position just below $26,700 with a negative bias but showed support from its 50-Day Moving Average (DMA). The CPI report revealed an increase in headline inflation driven by rental costs, which economists expect to decline in the coming months. Although core inflation remains above target, high interest rates and tightening financial conditions may discourage further rate hikes by the Federal Reserve. This indicates a favorable macro environment for crypto in 2024 as easing financial conditions become a focus. Combined with other bullish factors like the Bitcoin halving and potential approval of spot Bitcoin ETFs, crypto may see significant growth next year.
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