Bitcoin and crypto react bullishly to February’s 6.0% CPI

by Arthur · March 14, 2023

After Bitcoin made a massive rally of over 20% in the wake of the US banking crisis, all eyes were on the new US inflation data today. The release of the Consumer Price Index (CPI) for February came from the US Bureau of Labor Statistics (BLS) at 8:30 am EST. And these are the numbers:

The annual inflation rate was 6.4% in January and was estimated at 6.0% for February. The consumer price index for February released today showed inflation at 6.0%, in line with expectations. Annual core inflation was forecast at 5.5%, down from 5.6% in January. Today’s release was 5.5%.

On a monthly basis, the US consumer price index was 0.4% in February. The forecast was 0.4%, down from 0.5% last time. Core inflation on a monthly basis shows a similar picture. It was reported today at 0.5% for February, with both forecast and actual standing at 0.4%.

Thus, the inflation data comes out almost exactly as expected, only core inflation MoM is slightly higher than expected.

CPI: 6.0% – Forecast 6.0%

Core CPI: 5.5% – forecast 5.5%

Which means, completely as expected.

— Michaël van de Poppe (@CryptoMichNL) March 14, 2023

What does this mean for Bitcoin and Crypto?

The latest US inflation data is bullish as it could give the Fed room to pause or even cut interest rates. And the Bitcoin price immediately reacted accordingly. At press time, BTC broke through the all-important $25,200 resistance and hit $26,118 on Binance at one point.

One thing to keep in mind is that the dollar index (DXY) went into a downward spiral following the recent mixed US jobs report and the biggest banking crisis since the Great Financial Crisis of 2008. Due to the banking system’s inherent problem with US government bonds and the new “Bank Term Funding Program” of the US central bank (Fed), the dovish expectations have increased massively.

With the help of the new program, the Fed saves all banks. They can pledge their loss-making bonds (but also MBS) to the Fed at the purchase price at the time instead of the current market value and receive cash in return. For many market participants, this means that the Fed has turned on the money printer again while the DXY is poised for further downside.

Ultimately, the Fed has no choice but to avoid undermining confidence in the US banking system. The new inflation numbers should give the Fed more leeway to point to a deflationary environment and slow the pace of rate hikes or even take a break amid the banking crisis without losing its credibility.

For Bitcoin and crypto, the CPI print couldn’t be much better. There is only one downside, which the market seems to be ignoring at the moment. Liz Young, Head of Investment Strategy at SoFi write:

February headline CPI in line at 0.4% (m/m) and 6.0% (y/y), core slightly higher at 0.5% m/m vs 0.4% est. A somewhat worrying trend is that core services from former homes (aka. “supercore”) continued to move up m/m. That’s what the Fed is looking at, futures say a 25bp hike has a 76% chance.

At press time, the Bitcoin price broke through the key resistance of $25,200 and stood at $25,700.