Why does Bitcoin go crazy when KPI numbers are published?

If you have not noticed now, Bitcoin’s price is going through a serious short-term volatility on the day the KPIs hit. This is not without a good reason. This is without a doubt one of the most discussed calculations in recent months and one that affects a number of markets.

Before we see why Bitcoin goes crazy every time CPI is published, let’s first take a closer look at what this number represents.

What is the Consumer Price Index (CPI)?

Inflation is the hottest economic topic in recent months, and it’s largely because it’s skyrocketing around the world. Although many warned that high inflation was a direct consequence of the massive money printing carried out to counter the consequences of the covid pandemic, governments around the world continued to implement huge stimulus packages to help their distressed economies.

Inflation can be characterized as a general increase in prices and a decrease in the purchase value of money. So when governments printed trillions of dollars (or their respective currencies), this led to a reduction in their purchasing power (essentially inflating the existing supply with a new supply).

The US economy, which is without a doubt the world’s leader, is also experiencing high inflation, and the most common way of measuring it is the consumer price index.

According to the US Bureau of Labor Statistics, the consumer price index (CPI) is:

… A measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.

To be more precise, some of these goods and services included in the basket are food (home and away), energy, gasoline, electricity, new vehicles, used cars, clothing, medical treatment, shelter, transportation services, medical services, and so on. further. Therefore, many experts use it as a common way to measure inflation levels, although some argue that actual levels are higher because not all commodities are included in this curve.

As Kryptopotet reported, for the month of June 2022, the CPI clocked in to:

• 1.3% increase seasonally adjusted (MoM)
• 9.1% not seasonally adjusted (year-on-year)

The BBC outlined that corn inflation (recorded in June) was the highest we have seen in 40 years, and that in June is even higher.

Why does CPI matter for the price of Bitcoin?

The short answer to this is because it is a trigger in a way where market participants (read traders and investors) adjust their positions accordingly.

The Bureau of Labor Statistics publishes these figures transparently, and we know for sure when the next such event will occur – usually it is between the 10th and 15th of each month BLS publishes the figures for the previous month.

Regardless, even if there are estimates, the market is generally unaware of what the number will be. And the important thing about inflation is that literally every percent makes a serious impact because the authorities then have to react and make subsequent decisions to combat rising inflation.

So, for example, an inflation figure higher than projected could mean that the government will introduce larger interest rate increases in its subsequent meetings to curb rising inflation – which has an impact on bonds, government interest rates, deposits and whatever – all things. that market participants must account for and rebalance their positions accordingly.

Cryptocurrencies remain a niche market with a total value of less than one trillion, and yet many institutions and large investors are already involved. This means that a smaller portfolio balance compared to traditional markets can cause much more turbulence.

For example, on July 13 – when the BLS announced KPI figures for June 2022, the price of Bitcoin went through a day where the amplitude exceeded 7% – that’s a lot.

The conclusion is that the release date for the CPI is generally a turbulent event, especially when inflation is at the forefront of all economic discussions. This is something market participants use to reposition and adjust their portfolios accordingly, and it is the main reason why it causes massive volatility in the relatively small Bitcoin market.