Cryptocurrencies premature reaction to positive inflation data

An action packed night has drawn to a close with CPI numbers and the FOMC statement being released within hours of each other. Both bulls and bears fought gallantly, however, the bears came out on top.

A clearer image of the above chart can be found here (tradingview: https://www.tradingview.com/x/FouWe2J9/)

The premature reaction of the market saw BTC rally over 3% within three hours and reclaim $70,000. Altcoins were flying with top projects like INJ up over 16% and many other coins returning double digits.

Before the market had time to digest the bullish CPI numbers, a mere six hours later, Jerome Powell issued his hawkish statement. This speech would result in Bitcoin falling ~3.73% and altcoins suffering a much greater dump. The majority of cryptocurrencies had fallen to lower prices than they were at before the bullish CPI numbers were released.

With CPI numbers coming in under expectations, markets rallied in anticipation of inflation easing. CPI is the key measure of inflation, this is a key factor on how central banks come to their decisions around interest rates.

Core CPI, CPI m/m and CPI y/y data all coming in under expectations via (https://www.forexfactory.com/calendar)

When these numbers come in below expectation, risk-on assets rally against the USD. Hence, the extremely short lived crypto rally. The brief crypto rally was halted by Powell's hawkish remarks. Although inflation appears to be decreasing, interest rates stayed the same.

Coming into 2024, it was expected that the US would see three interest rate cuts. Following the most recent FOMC statement, the expectations have been lowered to only expect one cut of 25 basis points. Another concerning note to come out of the meeting was the number of members who prefer zero rate cuts this year, growing from two members to four (25% of the FOMC).

We can anticipate 2025 to be an aggressive cutting season with FOMC now seeing 5 rate cuts totalling 1.25 percentage points. If all goes to plan, 2025 would end with an interest rate of 4.1%.

How will future FOMC decisions impact Cryptocurrency?

As we approach the midpoint of the year, the cryptocurrency world has witnessed two distinctly different quarters.The first quarter was electric, with BTC gaining almost 70% qoq. Meanwhile, the current quarter has been lacklustre in comparison with BTC falling ~5% and altcoins suffering much more (at the time of writing). Who knows what the back half of the year will entail for crypto, it could be a slow and sideways with the shortage of key crypto events (no BTC or ETH ETF hype or BTC halving). However, with crypto being a major factor in the upcoming US Presidential election, October/November may sprout some bullish price action for Bitcoin.

A year of aggressive rate cuts will likely result in bullish price action from Bitcoin and other risk on assets. Could we be in for the frenzied bull market that every market participant is eagerly waiting for? Only time will tell, but if rate cuts go to plan, probability should suggest a good chance of BTC finally reaching six figures and the bull market to be in full swing.

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