Bitcoin and other cryptocurrencies have rapidly gained traction as the inflation rate in the US has reached its highest level in decades. Bitcoin’s rise has been driven by growing demand from institutional investors, many of whom believe the crypto-asset is a better store of value than traditional fiat currencies.
Furthermore, buyers are driving up market prices with their optimistic predictions about the future of digital assets. With its ever-increasing adoption, Bitcoin and other cryptocurrencies could become a viable alternative to traditional currency systems.
Financial markets were particularly turbulent after the Bureau of Labor Statistics’ announcement of US CPI data. CPI figures can have a very significant impact on prices in the cryptocurrency sector. Typically, a large deviation from CPI patterns is the source of massive price movement in the entire market.
With this in mind, there is a need for investors connected to the crypto ecosystem to fully understand what CPI numbers are and how these can affect their investments. This in order to better manage their portfolios. So, let’s now look at what the CPI numbers are.
What is the US Consumer Price Index (CPI)?
The US Consumer Price Index (CPI) is an economic indicator that aims to measure the average change in prices over time on a selection of goods and services. It is also used to measure the inflation rate in the United States, as well as to assess fluctuations in purchasing power.
The calculation of the CPI index takes into account a number of factors such as changes in the prices of food, housing, transport, medical care and much more. By tracking CPI numbers over time, economists can identify trends in consumer habits and make predictions about future inflation rates.
When it comes to investing, understanding how the US consumer price index works is key to making the best decisions possible.
How do changes in the CPI impact the market prices of cryptocurrencies?
Changes in the CPI index can have both a negative and a positive impact on the prices of the cryptocurrency market.
Inflationary pressure from a high CPI index can lead to increased demand for crypto-assets as investors look for investments that can resist inflation.
While a deflationary trend resulting from a low CPI index suggests a decline in aggregate demand and consequently an increase in the volatility of cryptocurrency market prices.
Inflation in the United States is expected to fall for the sixth consecutive month, to 6.5% in December 2022 (from 7.1% in November), the lowest level since October 2021. After rising for four consecutive months and after recorded a 0.1% increase in November, the CPI is expected to stabilize in the coming months.
Core inflation is expected to fall to 5.7% pa, its lowest level in a year, but monthly core inflation is expected to rise at a slightly faster pace of 0.3% from 0.2% in November.
The inflation rate of 9.1% for the month of June 2022, while representing an all-time high, nevertheless indicates a general increase in the price level, particularly in the services sector, moreover more than three times higher than the 2% of the Fed . objective.
Bitcoin Price Prediction: The Impact of the CPI
Now that we have explained the concept of CPI and its implications, it is easy to understand how it affects the cryptocurrency market. We can now anticipate two possible outcomes of the CPI indices that have recently been released.
If the CPI figures beat analyst expectations by 6.5%, prices in the cryptocurrency market could be higher. Bitcoin in particular could benefit from a very significant advance, breaching an immediate double-top resistance level of $18,250 and targeting the next resistance level of $19,000 or $19,450.
At the same time, lower than expected CPI figures of 6.5% could trigger a sell-off in the market and push Bitcoin towards the $17,500 support zone.