Bitcoin and other cryptocurrencies are rapidly gaining momentum as the inflation rate in the United States reaches its highest level in decades. Bitcoin’s rise has been fueled by growing demand from institutional investors, many of whom believe the crypto asset is a better store of value than traditional fiat currencies.
In addition, buyers drive up market prices with their optimistic predictions about the future of digital assets. Bitcoin and other cryptocurrencies, with its increasing adoption, may well become a viable alternative to traditional monetary systems.
Financial markets were especially excited after the announcement of the Bureau of Labor Statistics data on the consumer price index in the US. Consumer price metrics can have a very significant impact on prices in the crypto sector. As a rule, a large deviation from the CPI model is the source of massive price movement throughout the market.
With this in mind, investors connected to the crypto ecosystem need to fully understand what CPI numbers are and how they can affect their investment. This is done in order to best manage their portfolios. So let’s now see what the CPI numbers are.
What is the US Consumer Price Index (CPI)?
The US Consumer Price Index (CPI) is an economic indicator that measures the average change in prices over time for a set of goods and services. It is also used to measure the rate of inflation in the United States, as well as to assess fluctuations in purchasing power.
When calculating the consumer price index, a number of factors are taken into account, such as fluctuations in the prices of food, housing, transportation, medical care, and more. By tracking CPI performance 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 CPI works is the key to making the best decisions possible.
How do changes in the consumer price index affect prices in the cryptocurrency market?
Changes in the CPI index can have both negative and positive effects on the prices of the cryptocurrency market.
Inflationary pressure from a high consumer price index could lead to increased demand for crypto assets as investors look for investments that can withstand inflation.
While the deflationary trend resulting from the low consumer price index suggests a decrease in aggregate demand and therefore an increase in price volatility in the cryptocurrency market.
Inflation in the United States is expected to decline for the sixth straight month to 6.5% in December 2022 (from 7.1% in November), the lowest level since October 2021. After rising for four straight months and posting a 0.1% increase in November, the CPI should stabilize over the next few months.
Core inflation is expected to ease to 5.7% pa, the lowest level in a year, but monthly core inflation is expected to rise at a slightly faster rate of 0.3% from 0.2% in November.
While the inflation rate of 9.1% for June 2022 represents an all-time high, it nonetheless indicates an overall increase in the price level, in particular in services, more than three times the Fed’s target of 2%. . goal.
Bitcoin Price Prediction: CPI Impact
Now that we have explained the concept of the CPI and its implications, it is easy to understand how it affects the cryptocurrency market. We can now foresee two possible outcomes of the consumer price indices that have been recently released.
If CPI figures exceed analysts’ expectations of 6.5%, prices in the cryptocurrency market may be higher. Bitcoin in particular could benefit from a very significant upside, breaking the immediate $18,250 double top resistance level and targeting the next $19,000 or $19,450 resistance level.
At the same time, lower-than-expected CPI readings of 6.5% could trigger a sell-off in the market and push Bitcoin towards the $17,500 support zone.