The crypto rally is on again. The CPI pushed Bitcoin to its highest since last June.

“A decisive break above $25,200 would be bullish in the long term,” said Katie Stockton, managing partner at technical research firm Fairlead Strategies.

There are complex, and perhaps conflicting, dynamics in crypto markets.

In the past week alone, Silvergate Capital (ticker: SI) and Signature Bank (SBNY) – the most influential US bankers for the crypto industry – have failed, a headwind that bodes ill for market liquidity as well as sentiment for digital assets among regulators. Then, amid banking troubles at Silicon Valley Bank, traders faced deep fears about how deposits with that lender could threaten the viability of a key stablecoin.

And yet, Bitcoin has managed to jump higher in the face of these headwinds.

Some traders point to a guiding principle from Bitcoin’s founding – that it is a safe store of value in the face of common economic problems. “This feature of Bitcoin as capital preservation was revoked over the weekend,” noted Alex Kuptsikevich, an analyst at broker FxPro. But that doesn’t reveal the whole picture.

It is more likely that the rise in cryptos is due to the nature of the correlation between digital assets and stocks – although

Dow Jones Industrial Average

and

S&P 500

largely faltered on Monday while Bitcoin rallied.

Both crypto and stocks remain highly sensitive to the macroeconomic backdrop of rising interest rates. And the crisis in US banks – largely a function of losses on bond holdings as a result of higher interest rates – has prompted soul-searching for expectations about future monetary policy.

In the space of a week, markets have gone from expecting the Federal Reserve to step up to a major rate hike of 50 basis points at its meeting next week to pricing in a good chance the central bank will keep interest rates unchanged because of the bank woes. (A basis point is 1/100 of a percentage point.)

That’s a big tailwind for cryptos, which are even more price-sensitive than the solid stocks of the Dow and S&P 500. The tech stocks are heavy.

Nasdaq Composite,

which is more closely tied to Bitcoin, was the only one of the three major indices to see gains on Monday – driven by exactly the same force of shifting macro expectations.

Bitcoin’s recent outperformance is not a sign that it has left behind macro concerns, but rather an indication of how sensitive cryptos remain to the macro picture.

Beyond Bitcoin,

Ether

— the second largest crypto growth 10% to $1750. Smaller tokens or altcoins were also buoyant, too

Cardano

climbing 8% and

Polygon

9% higher. Memecoins were also in the green, with both

Dogecoin

and

Shiba Inu

up 8% each.

“Basically, cryptocurrencies are being helped by a change in monetary policy expectations,” said FxPro’s Kuptsikevich. “In less than a week, markets have come full circle on expectations, from a 25 basis point increase to a 50 basis point increase and back again. Additionally, expectations for further increases later this year fell on Monday and Friday, which is positive for cryptocurrencies .”

This was the set-up until Tuesday, when the February reading of the consumer price index (CPI) kicked the rise into high gear. The CPI is a key measure of inflation, and several decades of high inflation is what has driven the Fed to raise interest rates in the past year.

Overall CPI rose 6% year-on-year, in line with expectations and a decisive decline from 6.4% price growth in January. That has bolstered bets among traders that the Fed will raise interest rates by just 25 basis points next week, with odds of that rising above 82% on Tuesday from 65% on Monday, according to the CME FedWatch Tool. The markets are pricing in a 0% chance of a major rise.

Write to Jack Denton at [email protected]