key takeaways
- Bitcoin Is Up For Eight Days In A Row, Is Now Up 9.2% This Year
- A period of low volatility in crypto markets paired with soft inflation data has sent prices upwards
- The latest CPI report is released on Thursday which will trigger volatility and is important for the market after the last month or so of optimism.
- Altcoins could move violently on the report, while bitcoin could shake its $18,000 mark if the data comes in lower or higher than expected.
Bitcoin has gained in price for eight days in a row as the new year has been tough for cryptocurrency investors.
While 2022 brought nothing but pain and freebies, 2023 has been quite the opposite so far. Bitcoin is above $18,000 and Ethereum is near $1,400, good for gains of 9.2% and 16.4%, respectively. Many altcoins are up even more.
Volatility in crypto markets has reduced
The macro climate is pushing prices up. I wrote a piece analyzing the mild climate Last weekBut optimism has seeped into the market that inflation may have peaked and that the Federal Reserve’s pivot from increased interest rate policy may come sooner than previously thought.
It should be noted that although this is a nice rally, it is hardly a violent breakout. Cryptocurrencies are notoriously volatile and have actually been a unusual peace Which has been washed away in the markets in the last few weeks.
A quick look at Ethereum’s daily returns chart reveals a drop in volatility.
Inflation data will be released on Thursday
I’m writing this on a Thursday morning, with the all-important US inflation data due to be released this afternoon. If we know anything by now, it’s that inflation rules the world. If there is anything that will create volatility in the current environment, it is the CPI report.
As noted above, this relief rally is largely based on soft inflation, which leads to expectations that the Federal Reserve will wind down its high-interest-rate policy sooner than anticipated. Another positive inflation number will provide further momentum to crypto prices. It is not hard to imagine Bitcoin pushing towards $20,000 and Ethereum towards $1,500 if the numbers turn out to be cooler than anticipated.
On the flip side, of course, the numbers are likely to disappoint investors. After two straight months of positive inflation, a step back this afternoon would be a major blow to crypto, and it would be no surprise to see a sharp decline as all of the optimism of the past month is released in an instant.
The inflation number is expected to be 6.5%. This would be a decline from the previous month’s 7.1%. Should the number hit 6.7% or higher, it would represent a huge disappointment and crypto would likely break free. Don’t be surprised to see bitcoin down to $16,500 in this scenario.
The data will be released at 1:30 PM GMT (8:30 AM ET), and is the Federal Reserve’s last CPI report before February 1scheduled tribe interest rate decision.
Altcoins are showing signs of life
While things have been bad for Bitcoin and Ethereum, the scenario has been far worse for altcoins. Below is the percentage of returns as 1 from the top 10 coins in 2022scheduled tribe January 2022.
As is standard, these coins are quite volatile, and trade like leveraged bets on bitcoin. It follows that this year, Leap has also been stronger than the No. 1 crypto.
Looking at the top 10 coins since January 1stscheduled tribe This year, some of the returns have been seismic, albeit from a much lower base. Remember, a 50% gain after a 90% decline is still the same as an 85% decline from the original starting point. A simple math problem that many investors don’t understand. So, the past few weeks have been positive, but it is still a place completely devastated by the bloodshed of 2022, and will take a very long time to recover from.
final thoughts
This is an important week for the markets and will be a true gauge of how far the fight against inflation has come. Central banks have been adamant that inflation is the number one priority, and the resulting interest rate policy has crushed risk assets over the past year.
Things are tough in the markets, but with a third straight month of OK inflation data, this may point to a light at the end of the tunnel. On the other hand, the world is on the verge of a recession, and if inflation takes a step back, it will be a double whammy of higher rates and still-persistent inflation. As always, risk assets will feel the pain.
Crypto investors will just have to hope that the core CPI number doesn’t dare stick above 6.5%.