US Inflation Jumps to 3%, Crypto Market Faces Heavy Selling

YEREVAN (CoinChapter.com) — The latest Consumer Price Index (CPI) report shows US inflation rose to 3% in January, surpassing market expectations of 2.8%. The increase follows December’s 2.9% reading, signaling persistent price pressures. Monthly inflation climbed 0.5%, up from 0.4% in the prior month.

Core inflation, which excludes food and energy prices, rose 0.4% from the previous month. The annual Core CPI reached 3.3%, exceeding December’s 3.2% and surpassing analysts’ forecasts of 3.1%. These figures add to concerns about Federal Reserve interest rate decisions and investor sentiment.

Crypto Market Declines as US CPI Rises

Market analysts had expected lower inflation after last week’s weaker US job data. However, the higher-than-expected CPI figure shifted expectations, leading investors to move away from risk assets like Bitcoin, Ethereum, and altcoins.

Federal Reserve Policies and Market Reaction

Federal Reserve Chair Jerome Powell recently stated that the central bank would act cautiously on interest rate cuts, emphasizing its commitment to data-driven decision-making. His testimony before Congress comes amid rising concerns over the Federal Reserve’s independence, as markets assess any potential political influence from President Donald Trump’s administration.

The CME FedWatch Tool now suggests that the Federal Reserve is unlikely to lower rates soon, reinforcing uncertainty. Nigel Green, CEO of deVere Group, warns that any perceived loss of the Fed’s autonomy could trigger increased market volatility, capital flight, and a weakening dollar. He stresses that the Fed must remain independent to uphold economic stability and maintain trust in the US dollar as the world’s reserve currency.

Powell previously resisted political pressure during Trump’s first term, refusing to implement deeper rate cuts in 2019. With inflation still above the Fed’s 2% target, Powell faces renewed scrutiny over whether the central bank will continue making unbiased monetary policy decisions. Financial markets remain on edge, assessing Powell’s stance as he addresses Congress.

Market participants now brace for further adjustments as they await additional policy updates.

“A bit of reverse wealth effect may be the top factor to alleviate inflation, which means highly speculative crypto’s at the forefront. The US stock market added about $12 trillion of market capitalization in 2024 – the most ever and about 40% of GDP. It may be silly to expect inflation to drop until risks assets do, with the stock market cap stretched to over 2x GDP – the most in about a century,”

wrote analyst Mike McGlone.

Meanwhile, former President Donald Trump has called for aggressive interest rate cuts to curb inflation, leading to mixed expectations about monetary policy. The US 10-year bond yield rose 2.05% to 4.63%, while the US Dollar Index increased 0.42% to $108.29 following the CPI report.

Large Crypto Liquidations Continue

Macroeconomic factors have caused significant liquidations in the crypto market. Earlier this month, price volatility resulted in over $2 billion in liquidations, with some reports estimating totals exceeded $10 billion, surpassing levels seen during the 2022 FTX collapse.

Ben Zhou, CEO of Bybit, stated that real total liquidations were much higher than $2 billion, estimating them to be between $8 billion and $10 billion. He revealed that Bybit’s 24-hour liquidations alone reached $2.1 billion, while Coinglass recorded only $333 million for the exchange due to API limitations. Zhou emphasized that other exchanges also limit liquidation data, leading to underreported figures. To address this, he announced that Bybit will start pushing all liquidation data to ensure greater transparency.

The latest inflation data added to selling pressure. Bitcoin’s Fear and Greed Index fell to ‘Fear’, reflecting cautious trading.

Some analysts, including Arthur Hayes, noted that Bitcoin could decline further. He predicts that Bitcoin’s price will decline to between $70,000 and $75,000 before rebounding to $250,000 by the end of the year. He attributes the anticipated decline to macroeconomic factors, including rising U.S. 10-year Treasury yields, a tightening Federal Reserve, and reduced money printing in major economies such as the U.S., China, and Japan. Hayes believes these conditions increase financial stress, creating a negative environment for fiat-priced assets like Bitcoin, which he argues is highly sensitive to global liquidity conditions. Despite the short-term bearish outlook, Hayes remains optimistic about Bitcoin’s long-term prospects, expecting a significant recovery following the predicted downturn.

Crypto Market Awaits Next US Inflation Report

Traders are now monitoring the Producer Price Index (PPI) data, which will be released on Feb. 13, 2025, at 8:30 AM ET. The PPI tracks inflation from the producer side, giving clues about future consumer prices. If PPI inflation increases like the CPI, it could mean inflation is still rising, which would affect market expectations.

While high inflation figures could initially trigger crypto market declines, in the long term, sustained inflationary pressure may reinforce the narrative of Bitcoin as an inflation hedge. This could eventually support price recovery if investors shift back to crypto assets to protect against dollar depreciation.

The crypto market remains volatile, with inflation concerns influencing price movements. Until the Federal Reserve clarifies its monetary policy, uncertainty is expected to persist.

The post US Inflation Jumps to 3%, Crypto Market Faces Heavy Selling appeared first on Coinchapter.
%%featured_image%%