Summary
- In July, U.S. consumer prices increased by 0.1% following a 0.4% decline in June, according to the Bureau of Labor Statistics.
- Year-over-year, inflation stands at 3.4%, slightly down from June's 3.5%.
- On the day, Bitcoin rose approximately 0.3% to around $63,750, while the overall cryptocurrency market cap decreased by less than 1%.
The inflation rate in the U.S. for July decreased as anticipated, yet the cryptocurrency market, including Bitcoin, remained largely unaffected.
The Bureau of Labor Statistics announced Wednesday that the Consumer Price Index (CPI) had risen by 0.1% over the previous month, following a 0.4% drop in June, aligning with market expectations.
According to the Bureau, "Over the last year, the all items index increased 3.4 percent before seasonal adjustment."
The major contributor to this increase was the shelter index, which rose 0.1% in July, accounting for about two-thirds of the overall monthly increase. Conversely, energy prices fell by 1.5% as gasoline became cheaper. When food and energy are excluded, prices still increased by 0.2% in July after remaining steady in June, marking a 2.5% rise over the year—the figure most closely monitored by the Federal Reserve.
Typically, a decrease in inflation is seen as a positive indicator for risky assets like Bitcoin, as it may lead the Federal Reserve to lower interest rates. Consequently, a softer CPI usually boosts cryptocurrency values.
This time, however, the market had already anticipated this outcome.
Bitcoin's price reaction was minimal, showing a slight increase of about $209 (0.33%) to approximately $63,750, with a daily trading range of only 1.5%. The total market capitalization for cryptocurrencies fell from $2.19 trillion to $2.17 trillion, a decline of 0.9%. Both indicators reflect a market that seemed indifferent.
Why the Market Had Already Priced In This Outcome
The inflation figures did not significantly alter the Federal Reserve's strategy, landing right within economists' forecasts. At 3.4%, inflation remains well above the Fed's target of 2%, and the relatively calm report did not suggest any imminent easing of monetary policy, as it was never deemed likely.
Additionally, investors had already begun to position themselves. Spot Bitcoin ETFs attracted approximately $854 million over five consecutive days last week as expectations for rate hikes diminished, marking their most robust performance since May. This relief trade was effectively established before the CPI report was released.
Moreover, the market conditions were too weak for a significant breakout. Bitcoin is currently trading between a support level of around $62,000 and a resistance level of $67,000, remaining below $65,000 since a sharp selloff in early August. Its 50-day moving average is below the 200-day average, indicating a bearish trend, with overall momentum remaining weak.
Myriad: What's next for Bitcoin? Click the image to make your prediction.In the Myriad prediction market, which is run by the parent company of Decrypt, traders also showed little reaction to the CPI data. Currently, there's a belief that Bitcoin is more likely to continue its downward trend toward $55K rather than climbing to $84K. Additionally, there's only a 17% chance that Bitcoin will reach $70K this month.
Bitcoin had a previous opportunity to rally last week following a disappointing jobs report that suggested a dovish stance from the Fed, but it failed to capitalize on that as well. Thus, it's not surprising it responded similarly to this latest economic indicator.
Disclaimer
The insights provided by the author are intended for informational purposes only and should not be interpreted as financial, investment, or other forms of advice.