Inflation Deflates BTC
One day after surging to set a new cycle high above $50k, Bitcoin is getting hammered lower, declining by 2.5% on the day. What is causing markets to tank?
It wasn’t just Bitcoin that took a dive this morning; broader risk markets woke up on the wrong side of the bed, with the S&P 500 opening 1.3% off its yesterday close, a move lower can all be traced back to the release of January inflation data!
Core inflation rose slightly from December, and while the annualized inflation rate remains flat, the three and six-month annualized core inflation rates ticked up after January’s print, signaling that inflation has increased in recent months.
Core inflation was firmer than expected in January, with the core CPI rising 0.39% from December. That leaves the YoY rate steady at 3.9%
— Nick Timiraos (@NickTimiraos) February 13, 2024
The 3-month annualized rate ticked up to 4% from 3.3%
The 6-month annualized rate was 3.7% (vs 3.2%) https://t.co/2e9hoQ9eZA pic.twitter.com/5bXOczsrox
Worse yet, supercore inflation, a measure of the sticky inflation that can inflict the economy for prolonged periods of time, continued on its upward trajectory from October and now sits at 5.5%!
In anticipation that the Federal Reserve will need to maintain higher rates for longer to combat these inflationary forces, expectations for future rate cuts have come in, and yields on Treasuries have ripped higher, sucking liquidity from risk assets.
Hot inflation may have shifted expectations for future rate cuts, but crypto’s majors are within striking distance of establishing new all-time highs, and traditional indices are already setting them on the regular!
Until a significant shift occurs in the market's underlying dynamics, it appears that investors will remain eager to capitalize on any dips, continuing to buy them with gusto.