US December CPI data fell as expected, Bitcoin rushed to $19,000

On Thursday, January 12, New York time, inflation data released by the U.S. Department of Labor showed that the U.S. Consumer Price Index (CPI) fell 0.1% in December, the largest month-on-month drop since April 2020, meaning that the U.S. central bank’s efforts to fight inflation have finally paid off, with inflation falling moderately at the end of 2022. It also strengthened investors’ bets that the Federal Reserve will further slow the pace of interest rate hikes.

After the CPI data was released, the U.S. stock market and the crypto market reacted quickly. Bitpush terminal data showed that Bitcoin led the rise, approaching $19,000 that day. As of 4:00PM EST, Bitcoin was trading at $18,900, up nearly 8% in the past 24 hours. Ethereum was trading at about $1,420, up 5.8%, BNB up 2.4%, Ripple 's XRP up slightly by 0.5%, Cardano 's ADA up 5.2%, and Polygon 's MATIC up 6%.

The pace of interest rate hikes slowed further

Thursday's inflation data, combined with Friday's jobs report, seemed to have financial markets confident about the Fed's next move: to continue to slow its rate hikes.

CME Group's FedWatch data shows there is a 95% chance that the Federal Reserve will raise interest rates by 25 basis points on Feb. 1. FedWatch uses implied 30-day federal funds futures pricing data to analyze the likelihood of changes in interest rates and U.S. monetary policy.

However, even with some cooling in inflation, CPI prices were still up 6.5% in December compared with a year ago, highlighting the continued burden that rising living costs are placing on American families. "Inflation is slowing rapidly," said Mark Zandi, chief economist at Moody's Analytics. "Obviously, it's still painfully high, but it's moving rapidly in the right direction, and I see good news in the report, except for the most important number: 6.5% is too high."

The Federal Reserve takes into account various economic data when measuring inflation, and CPI is part of it. The decline in December was mainly caused by falling natural gas prices. Considering market dynamics and consumer demand, this decline may not be sustainable. We need to continue to observe the January data.

Current CME data shows that there is a 76% chance that the Federal Reserve will raise interest rates by another 25 basis points in March, and a 55% chance that it will then suspend rate hikes in May. If the prediction is correct, the pressure on risky assets such as Bitcoin will be greatly reduced.

Steven Lubka, managing director of private clients at Swan Bitcoin, tweeted that he expects inflation to continue to soften in the first half of 2023, which should give the Fed room to ease monetary tightening. However, he also warned that inflation in the second half of the year may not be so mild, and the central bank may have to deal with a weak or even recessionary economy while inflation rises.

Will Bitcoin continue to rise?

Data from the Bitpush terminal shows that BTC prices have closed higher for nine consecutive trading days, the longest rally since the outbreak of Covid 19 in 2020.

Senior market analyst Jim Wykoff tracks a number of technical indicators and believes there is still more room for gains in the near term as “the daily chart shows bulls have upside momentum as the price uptrend has just begun.” Wykoff also noted: “Prices also broke through the critical resistance of the 50-day moving average this week, which is another bullish signal.”

Anonymous analyst Altcoin Sherpa believes that Bitcoin may have more downside before rebounding again, and it is not a good position to go long on Bitcoin. Sherpa wrote: "It is not a good place to go long here... I would rather wait for a breakthrough and retest or fall before buying. I still think that as long as the trend is reasonable, the overall price will rise. Currently, active positions are flat and need to wait for clearer signals."

Additionally, negative events in the crypto industry and concerns about a regulatory crackdown could lead to the next wave of downward pressure.

Bitpush previously reported that FTX lawyer Andy Dietderich said the company has recovered more than $5 billion in assets, including cash, liquid cryptocurrencies, and liquid investment securities, but it is unclear how the $5 billion will be returned and whether it will trigger a market crash if some tokens are sold. The tension between DCG and Gemini is also a focus of industry attention. According to the Financial Times , people familiar with the matter said that cryptocurrency broker Genesis owes creditors more than $3 billion, and its parent company Digital Currency Group is considering selling some venture capital assets to raise funds, worth about $500 million.

The market is digesting these negative events. Since the beginning of the year, the decline of Bitcoin has gradually narrowed, and the total market value of cryptocurrencies has also rebounded. If the Federal Reserve's interest rate tends to be flat, Bitcoin may continue to rebound as the macro economy is bullish.

Noelle Acheson, author of “Crypto Is Macro Now,” believes that once these outstanding issues are resolved, institutions may make a comeback. Acheson wrote in a report: “There is no doubt that when the outlook is not so bleak, large companies will return to the market and push up trading volumes and prices.”