Bitcoin knee-jerks higher, responding to US October inflation data

Inflation declined in October, with the Consumer Price Index (CPI) remaining mostly flat for the month when economists had anticipated a 0.1% rise in the US.

Data from the Bureau of Labor Statistics (BLS) published on Tuesday revealed that the CPI for October was unchanged compared to September’s 0.4% gain.

However, on a year-over-year basis, the CPI increased 3.2% from 12 months earlier. But the expectations were for 3.3%, down from 3.7% in September.

The CPI measures the monthly change in prices paid by US consumers. The BLS calculates the CPI as a weighted average of prices for a basket of goods and services representative of the aggregate of the country’s consumer spending.

Similar to this, the core CPI also measures the price of a selection of goods and services but strips out volatile prices such as food and energy. These categories are removed to create a more stable measure of underlying inflation trends.

In the month of October, the core rate rose by only 0.2% against the forecasted 0.3% and September’s 0.3%. However, on a year-over-year basis, the figure was higher by 4.0% compared to the 4.1% that was expected and 4.1% in September.

Bitcoin ($BTC) reacted to this news by knee-jerking nearly 1% minutes after the release of these figures. In doing so, it went past the key $36,700 price level, sustaining its trade in the green today.

Even though the headline CPI inflation has been receding for months, it continued to stay above the US Federal Reserve’s 2% target. On top of this, the core CPI has also remained above 4% for several months running.

Fed members have expressed that they are now interested in one more rate hike before finally ending what’s now a roughly 20-month monetary tightening cycle.

Talking about this, the chief economist at RSM, Joseph Brusuelas, said: “This is good news folks. Expect more disinflation moving forward especially as shelter costs ease into mid-2024.”

Before the latest figures came out today, traders priced in about an 86% chance the Fed would hold rates steady at its next meeting which is scheduled for sometime in mid-December.

According to the CME FedWatch Tool, there were also expectations for a roughly 75% chance of a continued pause at the January meeting. However, shortly after the release of the new data, the odds of a December pause rose to 99.5% and for a January pause to 95.6%.

Traditional markets responded well to the release as both Nasdaq 100 futures and S&P 500 futures gained 1.9% and 1.4%, respectively. However, the cryptocurrency market was still down by almost 1% daily, with a market capitalisation standing at $1.44 trillion today.

Bitcoin reacted only modestly as it continued to trade range bound after trying to rise towards $37k. On-chain data also noted that liquidity was overall thin, which could potentially aid volatility. The whales were quiet on exchanges and it was retail investors who were increasing the $BTC exposure.

The research and data analyst at crypto insights firm CryptoSlate, James Van Straten, told his followers on X (formerly Twitter) that these bull market corrections were normal and healthy as Bitcoin is already down 4.5% from the highs.

Adding on, he said: “Could see up to 20% drawdowns, from profit-taking or liquidations. This is a normal occurrence and has been seen in previous cycles.”