The CPI report for January is here, and we finally know that inflation increased by 0.5% in January. During December, the increase in inflation was only 0.1%, but this is in line with what the market was expecting.
And it seems that Bitcoin (BTC) and other cryptocurrencies have turned bearish once again on the prospects of higher interest rates. After all, there's a close relationship between inflation and the high-interest rates. And we all know that Bitcoin (BTC) and other non-yielding assets turn bearish when the interest rates around the world are high.
If we look at the US inflation on a y/y basis, it is still way higher than what the market was hoping for! The y/y core inflation is 6.4%, while it was around 6.5% in December. However, the market was expecting a y/y inflation of only 6.2%!
In short, the inflation in the USA is slowing down, but the pace is not what the market was expecting it to be... In other words, the high-interest rates can stay for much longer unless inflation starts to go down at a faster pace.
As soon as the inflation report was released, Bitcoin's (BTC) price went down by $100 and was last seen trading around $21770. Similarly, the stock index futures also turned lower and so did the Nasdaq 100 index!
In order for Bitcoin (BTC) and other crypto assets to shine brightly & make significant upside, the inflation needs to go down. This will open the room to interest rate cuts so that the environment becomes favorable for cryptocurrencies.
For now, the market is now forecasting yet another rate hike from the Fed. The rate hike will be worth 25 basis points and will be announced in March. Similarly, another rate hike is expected in the month of May as well which means we have to wait till then to see upside in cryptocurrencies.