The price of Bitcoin first suffers from CPI, then takes off

What happened between yesterday and today to the price of Bitcoin, due to the CPI, is really very interesting. 

Actually, it is a dynamic that started a few days ago, influenced only yesterday for a relatively short time by the CPI data. 

The US CPI and the reaction of the Bitcoin price

With CPI we mean the Consumer Price Index, which is the index of consumer prices.

Yesterday, the new data on January CPI in the USA were released. 

The data turned out to be not only worse than expected, but above all not better than in December. 

As for the CPI of the USA, in January 2024 it rose to 308.4 points, while in December it was at 306.7 points. This is a significant increase that brings the index even above the levels of September. 

To better understand the problem, it is advisable to focus on the core inflation data. 

The core inflation is the one that the Fed takes as a reference to decide any possible changes to its monetary policy. 

Yesterday it was discovered that in January 2024 core inflation in the USA did not decrease, as it had done in December, but remained at an annual rate of 3.9%. 

In November it was at 4%, so in December it had decreased by one-tenth of a percentage point. However, it should be remembered that it was also at 4% in October, so what happened in January is the same as what happened in November. 

However, the markets were expecting a decrease of 3.7%, and that’s why they reacted negatively. 

The Federal Reserve’s Monetary Policy

The financial markets are eagerly awaiting an interest rate cut by the Fed. 

They have been waiting for it so long that in recent months they had even deluded themselves that it could have happened as early as March (there will be no decision on this matter in February).

Now, however, since core inflation did not decrease in January, they have changed their mind not only about March, but also about May (there will be no decision in April regarding this).

So while until the day before yesterday the markets were convinced that the first interest rate cut would happen in May, now they are doubting it. 

It has been weeks now that they have convinced themselves that there will be no cut in March, therefore the attention has shifted to May. With the current data, it does not seem likely that the Fed will be able to start cutting rates as early as May. 

According to Federal Reserve Chairman Jerome Powell, it is possible to hypothesize about three 25 basis point rate cuts in 2024, and if that is the case, there will be no cut before at least June. 

At this moment, however, the markets still give a 36% probability that the Fed will start cutting rates in May, while for the hypothesis that they will start by June, the probabilities rise to 76%. 

To tell the truth, there is still a whopping 54% probability that rate cuts will be more than three. 

The markets have therefore been too optimistic about the effectiveness of the Fed’s monetary policy in reducing inflation, and they seem to continue to be so. 

Yesterday, however, they changed their mind about May, and it was this change of mind that moved the markets. 

The drop in the price of Bitcoin after the publication of the CPI

At the time of data publication, yesterday the price of Bitcoin suddenly dropped from around $50,000 to around $48,300.

However, it was immediately clear that there didn’t seem to be the conditions for a further descent. 

On the other hand, even before the publication of the data, it was clear that there could be conditions for a correction, and in fact, yesterday’s correction did not surprise almost anyone. What surprised was the very limited extent of the correction, and above all, the subsequent rebound. 

The fact is that on Monday the price of Bitcoin was still around $48,000, and the rise above $50,000 happened in just over three hours. 

When such spikes occur, albeit relatively contained, the fact that they happen in a short time always suggests that they may be mini-bubbles, or quick peaks of excessive enthusiasm that then fade as quickly as they took to form. 

Instead, not only did the price of Bitcoin stay at $50,000 for more than 24 hours, but the subsequent correction didn’t even erase all the gains as it stopped at $48,300.

Furthermore, it should be added that a week ago the price was still at $43,000, and three weeks ago it was below $39,000. A +30% increase in three weeks for Bitcoin always makes one think of a probable correction, so yesterday’s seemed to be a “phone call”. 

The bounce

For these reasons, yesterday almost no one was surprised by the drop below $49,000, but to tell the truth, a possible drop below $48,000 was also expected. 

Instead, the correction, unexpectedly, lasted only four hours, then the price stabilized. 

Even this morning the price was more or less at $49,600, so many were expecting a day of sideways movement. 

At a certain point, however, a real rebound occurred, about 16 hours after the end of yesterday’s correction. 

The rebound was so unexpected that the price ended up rising above $51,000, setting new records for the year. In fact, today’s peaks are the highest in over two years, as you have to go back to November 2021 to find similar levels. 

In other words, these days Bitcoin is showing great signs of strength. 

At this point, it is even legitimate to imagine that the rebound may not even be over, and that it may even hope to exceed 52,000$.

It should be noted that in December 2021 the price fluctuated between $45,000 and $52,000 before dropping to $40,000 in early January 2022. Perhaps this is precisely the current price range of Bitcoin, and if it manages to rise above $53,000, completely new scenarios would open up, in line with those of November 2021 that led to the all-time high of $69,000. 

Alternatively, once the $52,000 mark is reached, it could also retrace, perhaps remaining above $45,000.

Meanwhile, however, it has once again reached a market capitalization of one trillion dollars.