Bitcoin prices soared to a 20-month high of $48,965.41 after the December 2023 U.S. Consumer Price Index report was released on January 11.
The U.S. Bureau of Labor Statistics released the U.S. Consumer Price Index (CPI) report on January 11, showing higher-than-expected inflation figures. Initial market reaction showed U.S. stocks faltering, with the S&P 500 falling 1% within five hours of the report’s release.
On the other hand, the cryptocurrency market saw a huge rally as Bitcoin (BTC) retested the $49,000 region for the first time since May 2022.
US CPI data showed higher-than-expected inflation rates.
The U.S. CPI report is an important focus for financial markets because it has important implications for the Federal Reserve’s monetary policy and Treasury yields. The latest report released on January 11th appears to have put bullish pressure on Bitcoin price action due to two main factors.
First, looking at the data released on January 10, the CPI in December 2023 showed an increase of 0.3%. Compared to the same period last year, the overall item index rose 3.4%, a notable increase compared to 3.1% the previous month. previous year.
More importantly, the chart below from TradingEconomics shows that the market has priced in the consensus expected inflation index of 306.61. But notably, the official figure was slightly higher than the expected inflation rate at 306.746.
Higher-than-expected inflation numbers often trigger bullish price movements in non-cyclical risk assets such as Bitcoin.
If the actual CPI number is higher than the consensus forecast, it indicates a higher-than-expected inflationary economic environment. This scenario could cause the Federal Reserve to reevaluate monetary policy and potentially cut interest rates.
High inflation often causes volatility in the stock market as investors expect it to have a negative impact on corporate profits and economic growth. In these scenarios, investors often look to divert their funds into non-cyclical risk assets such as Bitcoin.
The chart above captures the initial Bitcoin price reaction to CPI data compared to the S&P 500, a major stock market index. The S&P 500 fell 1% to 4,777.94. Meanwhile, the price of BTC rose to $48,890 on January 11, up 10% in 24 hours.
This negative difference corroborates the prospect that higher-than-expected inflation data could increase BTC’s attractiveness to investors.
Bitcoin Investors Bet Early on Potential Interest Rate Cut
Beyond the price chart, the immediate reaction of Bitcoin institutional investors is another important factor confirming this bullish CPI narrative for BTC price. Santiment’s address-based supply tracks a company’s Bitcoin holdings by counting balances held in wallets with at least $100,000 worth of BTC.
Bitcoin’s largest group of whale investors (wallets holding between 10 and 1 million BTC) held a total balance of 2.97 million BTC at the close of business on January 10. However, following higher-than-expected inflation data, the whales rapidly increased their balances to 2.98 million BTC. BTC.
The chart above shows that Bitcoin institutional investors increased their holdings by 10,000 BTC on January 11th. With BTC currently trading at $46,003 each, the newly acquired coins are worth approximately $460 million at the time of this writing.
The move reaffirms that institutional investors may increase their exposure to Bitcoin in an early bid for early gains from a potential interest rate cut.
Corporate investors have a huge influence on all cryptocurrency ecosystems. Therefore, it is possible that strategic retail investors and speculative traders may take a bullish stance, reflecting the whale’s position.
In summary, the timing of the release of CPI data less than 24 hours after the much-anticipated spot ETF approval appears to have intensified bullish pressure on the Bitcoin price.
Positive CPI data impact pushing Bitcoin price to $50,000?
Based on the aforementioned data points, whale investors have been buying BTC following CPI data and spot ETF approval. If sustained, bullish pressure from these important factors could push the price of Bitcoin towards $50,000 in the coming days.
However, the resistance at $47,590 is a major obstacle for the bulls to realize this target. IntoTheBlock’s deposit/withdrawal price data shows key resistance and support levels by grouping current holders according to their past entry points. As shown below, 882,400 addresses earned 563,740 BTC at an average price of $47,593.
If these key groups of investors continue to book profits, BTC could continue to consolidate just above $45,000.
However, if the bulls can orchestrate a decisive break above the $47,600 resistance, a retest of $50,000 could become possible.
Conversely, BTC could experience a major decline, with the decline forcing an unexpected reversal below $43,500. In this case, the chart above shows that holders of 1.48 million BTC won 690,980 BTC at an average price of $43,950.
To avoid being caught in a net loss position, this group of investors may buy short-term and trigger an early rally.