Table of Contents
main conclusions
Bitcoin has risen for eight consecutive days, now up 9.2% on the year The period of low volatility in crypto markets, combined with softer inflation data, has driven prices up The latest CPI report was released on Thursday, which will trigger volatility and will be vitally important for the market after the surge in optimism last month. Altcoins could move wildly on the report, while Bitcoin is likely to surpass its $18,000 mark if the data comes in below or above expectation. Bitcoin has racked up eight consecutive days of price increases as the new year has started off steadfastly for cryptocurrency investors. While 2022 brought nothing but pain and plummeting prices, 2023 so far has been the exact opposite. Bitcoin is above $18,000 and Ethereum near $1,400, good for year-to-date increases of 9.2% and 16.4% respectively. Many altcoins are bullish even more.
Volatility has declined in cryptocurrency markets
The macro climate is pushing prices higher. I wrote an article analyzing the milder weather last week, but optimism has crept into the market that inflation may have peaked and the possibility of a Federal Reserve shift to its high interest rate policy may come sooner. than previously anticipated. It should be noted that while this is a good rally, it is hardly a violent breakout. Cryptocurrencies are notoriously volatile, and indeed, there has been an unusual serenity that has pervaded markets in recent weeks. A quick look at the chart of Ethereum daily returns illustrates that there has been a noticeable drop in volatility.
Inflation data to be released on Thursday
I write this on Thursday morning, with the most important US inflation data due this afternoon. If we know anything by now, it’s that inflation numbers rule the world. If there’s anything in the current climate that will produce volatility, it’s the CPI report. As mentioned above, this relief recovery was largely based on milder inflation, leading to hopes that the Federal Reserve will abandon its high interest rate policy sooner than anticipated. Another positive inflation number would give cryptocurrency prices more momentum. It’s not hard to imagine Bitcoin rising to $20,000 and Ethereum to $1,500 if the number turns out to be cooler than anticipated. On the flip side, of course, is the number’s potential to disappoint investors. After two consecutive months of positive inflation, a step back this afternoon would deal a blow to the cryptocurrency, and it would not be a surprise to see it drop sharply as all of last month’s optimism is released in an instant. The expected inflation number is 6.5%. This would represent a drop from the previous month of 7.1%. If the number reaches 6.7% or higher, that would spell a huge disappointment and the cryptocurrency will likely crash. Don’t be surprised to see Bitcoin drop to $16,500 in this scenario. The data will be released at 1:30 pm GMT (8:30 am ET), and is the latest CPI report ahead of the Federal Reserve’s interest rate decision on Feb. 1.
Altcoins show signs of life
As bad as things have been for Bitcoin and Ethereum, the picture has been much worse for altcoins. Below are the 2022 percentage returns of the top 10 coins as of January 1, 2022. As is standard, these coins are significantly more volatile and trade as leveraged bets on Bitcoin. It follows that this year, the bounces have also been stronger than the #1 cryptocurrency. Looking at the top 10 coins on January 1 of this year, some of the returns have been seismic, albeit from a significantly lower base. Remember, a 90% drop followed by a 50% rise is still the same as an 85% drop from the original starting point. A simple math problem that many investors don’t understand. So the last few weeks have been positive, but this is still a space absolutely devastated by the bloodbath that was 2022, and it will take a long time to recover.
final thoughts
This is a crucial week for the markets and will be a true indicator of how far the battle against inflation has come. Central banks have been adamant that inflation is the number one priority, and the ensuing interest rate policy crushed risky assets last year. Things are tough in the markets, but with a third consecutive month of OK inflation data, this could point to a light at the end of the tunnel. Then again, the world is on the verge of a recession, and if inflation recedes, it will be a double whammy of high rates and still persistent inflation. As always, risky assets will feel the pain. Crypto investors will just have to hope that the core CPI number doesn’t dare go above 6.5%.
