Bitcoin price rose to a 20-month high of $48,965.41 after the US Consumer Price Index report for December 2023 was released on January 11.
The US Bureau of Labor Statistics released the US Consumer Price Index (CPI) report on January 11th, which showed higher than expected inflation figures. Initial market reactions sent U.S. stocks tumbling, with the S&P 500 falling 1% within five hours of the report's release.
On the other hand, cryptocurrency markets received a massive boost as Bitcoin (BTC) retested the $49,000 area for the first time since May 2022.
US CPI data shows inflation rate above expectations
The US CPI report is a key focus for financial markets due to its significant impact on Federal Reserve monetary policy and Treasury yields. The latest report published on January 11 appears to have added upward pressure to Bitcoin’s price action due to two key factors.
First, data released on January 10 shows that the CPI recorded an increase of 0.3% in December 2023. Year-on-year, the overall index shows an increase of 3.4%, a notable increase compared to 3.1% the previous year.
More importantly, the chart below from TradingEconomics shows that markets had priced in a consensus inflation index of 306.61. What is noteworthy, however, is that the official figure was 306,746, slightly higher than the expected inflation rate.
US Consumer Price Index (CPI) data | Source: TradingEconomics
Higher-than-expected inflation often triggers bullish price movements in non-cyclical risk assets like Bitcoin.
If actual CPI readings are above consensus forecasts, it suggests a more inflationary economic environment than expected. This scenario could cause the Federal Reserve to rethink its monetary policy and potentially lower interest rates.
Higher inflation often triggers volatility in stock markets as investors anticipate a negative impact on corporate earnings and economic growth. In such scenarios, investors often seek to divert their funds into non-cyclical risk assets such as Bitcoin.
Bitcoin (BTC) price vs. S&P 500 | Source: TradingView
The chart above shows Bitcoin price's initial reaction to CPI data compared to the S&P 500, the flagship stock market index. The S&P 500 slipped 1% to 4,777.94. Meanwhile, BTC prices rose as high as $48,890 on January 11, registering a 10% increase in 24 hours.
This negative divergence reinforces the prospect that this higher-than-expected inflation data could increase BTC's attractiveness for investors.
Bitcoin investors are betting early on possible interest rate cuts
Looking beyond the price charts, the immediate reaction from institutional Bitcoin investors is another important factor that confirms this bullish CPI narrative for BTC price. Santiment's Supply by Address metric tracks businesses' Bitcoin holdings by aggregating balances held in wallets with at least $100,000 worth of BTC.
Bitcoin's largest whale investor cohort – wallets holding 1,000 to 1 million BTC – held a total balance of 2.97 million BTC as of the close of trading on January 10th. However, following the better-than-expected inflation data, whales quickly increased their balances to 2.98 million BTC.
Bitcoin (BTC) Whales Wallet Balance vs. Price | Source: Santiment
The chart above shows that institutional Bitcoin investors increased their holdings by 10,000 BTC on January 11th. With BTC currently trading at $46,003 apiece, the newly acquired coins are worth approximately $460 million at the time of writing.
This move reinforces that institutional investors could increase their exposure to Bitcoin early to take advantage of potential interest rate cuts.
Corporate investors have a huge influence on any cryptocurrency ecosystem. Therefore, there is a possibility that strategic retail investors and speculative traders could adopt the stance of the whales and also take bullish positions.
In summary, the timing of the CPI data release, less than 24 hours after the highly anticipated spot ETF approval, appears to have added upward pressure to Bitcoin price.
Positive CPI data influences Bitcoin price to $50,000?
Based on the above data points, whale investors have been accumulating BTC following the CPI data and spot ETF approval. If the bullish pressure from these critical factors continues, it could push Bitcoin price to $50,000 in the coming days.
However, the resistance at $47,590 is the main obstacle for the bulls to achieve this goal. IntoTheBlock's In/Out-of-the-Money Around price data reveals key resistance and support levels by grouping current holders by their historical entry points. As shown below, 882,400 addresses had purchased 563,740 BTC at an average price of $47,593.
If these major investor groups continue to book profits, BTC could continue its consolidation just above the $45,000 level.
But if bulls can manage a decisive breakout above the $47,600 resistance, a retest of $50,000 could be on the horizon.
Bitcoin (BTC) price prediction on CPI data, January 2024 | Source: IntoTheBlock
Conversely, BTC could see a strong downtrend as bears force an unexpected reversal below $43,500. In this case, the chart above also shows that 1.48 million BTC holders had purchased 690,980 BTC at an average price of $43,950.
To avoid slipping into a net loss position, this group of investors could short cover and potentially trigger an early recovery.
Learn Crypto Trading, Yield Farms, Income strategies and more at CrytoAnswers
https://nov.link/cryptoanswers
Comments are closed.