Bitcoin edges higher as inflation cools more than expected in March

New the rise above $30,000 the day before, Bitcoin inches higher after a much-watched inflation gauge showed rising prices continued to cool in March.

The consumer price index rose 5% in the 12 months to March, the Bureau of Labor Statistics (BLS) said Wednesday, coming in lower than economists’ forecasts. On a monthly basis, the index rose 0.1%a noticeable deceleration from 0.4% in February.

Bitcoin rose .6% to $30,276 while Ethereum was down another 1.5% $1887 ahead of the network’s Shanghai upgrade, according to CoinGecko.

Other tokens, included Dogecoin and XRP was also in the red as the market cap for all cryptocurrencies was totaled $1.28 trillions.

The CPI, which tracks price movements across a wide range of goods and services, provides potential insight into the Federal Reserve’s next move. The US central bank has pushed interest rates aggressively in a bid to curb soaring inflation, which hit a 41-year high of 9.1% last June, but has recently taken a softer approach with smaller rate hikes.

“It’s a signal that tells us the Fed is likely to start thinking about pivoting,” said William O’Neil + Co head of research products dean Kim Kim decrypt, referring The CPI printout. “They’ve done enough damage in 2022, raising prices a lot, and we’ve seen some systemic fallout from that.”

Unpacks the CPI

A decrease in Energy Prices were cited by the BLS as an important factor in the index calm down on an annual basis, falling 3.5% on a monthly basis. The core CPI, which strips out volatile food and energy prices, rose 5.6% during the twelve months to March. The measure used to fine-tune inflation trends yielded a monthly gain of 0.4%a slight decrease compared to 0.5% in February.

Expenses for shelter increased 8.2% in the 12 months to March, while they rose 0.6% month-on-month. Economists have been keeping a close eye on shelter prices, which account for a significant portion of both core CPI and headline inflation, and have proven stubborn.

“If you remove the shelter, inflation is actually quite low,” Kim said. “But the fact that the total number is coming in cooler, that’s a sign that the shelter component is also decreasing.”

When the Fed tries to slow down an overheated economy by raising borrowing costs, it will generally keep its foot on the brake until part of the financial system breaks—at least that’s the saying on Wall Street.

Expectations have grown among investors that the Fed may soon pause tightening – or even reverse course by cutting interest rates – following the collapse of several banks last month, such as crypto-friendly firms Silvergate Bank and Signature Bank.

But the Fed decided to push interest rates up anyway, delivering a modest rate hike of a quarter of a percent in March. It raised interest rates to a range of between 4.75% and 5.00%, and Fed Chairman Jerome Powell signaled that ongoing hikes are likely to be needed to bring inflation down to 2% — the Fed’s goal of keeping prices stable .

However, the markets are not convinced. Investors are betting that the US Federal Reserve will deliver another rate hike in May and finally cut them by the end of this year, according to CME FedWatch Tool.

The probability that the Fed will deliver a rate hike of 25 basis points chin down a bit after Wednesday’s CPI printout to around 67% from almost 73% the day before.

Crypto reacts to high speed environments

While cryptocurrency prices were already falling, they came under even more pressure when the Fed lifted interest rates from near zero last March. Tight money has weighed on other risk assets such as stocks, making them less attractive compared to US Treasuries or holding cash reserves.

Price movements on the back of the latest CPI print were likely amplified by the recent shutdowns of Silvergate’s SEN and Signature’s Signet networks. The loss of the payment networks that were once widely used by institutions has accounted for liquidity risk to markets and injected volatility.

“At the same time, the impact that monthly inflation readings have on cryptocurrency markets has diminished as the Fed’s path to curb inflation becomes more apparent,” said Bit Mining Limited’s chief economist Youwei Yang. Decrypt.

While cryptocurrencies largely fell through 2022, blue-chip digital assets have emerged as one of the best investments so far this year. Bitcoin and Ethereum are up over 81% and 56% year to date, respectively according to CoinGecko.

“Basically, they’ve priced it in, and the impact [of CPI] has been decaying for a while,” Yang said. “Markets have a clearer picture – almost all market participants expected 5.1% or 5.2% inflation, and the CPI came out slightly better than expected.”

The recent pullback from all-time highs was far more dramatic for crypto than stocks, but the coins’ gains outpace major indexes like the S&P 500 and Nasdaq, which have risen 7.5% and approximately 16%respectively so far this year.

The views and opinions expressed by the author are for informational purposes only and do not constitute financial, investment or other advice.