Crypto Markets Could Rally Today On U.S. Inflation Data, Here’s Why

Crypto markets, which have been severely battered in recent weeks, could see a relief rally on Wednesday if U.S. inflation data is favorable.

Total crypto market capitalization has sunk by nearly $500 billion in the past week, and is currently holding at about $.14 trillion. Major cryptos such as Bitcoin (BTC) and Ethereum (ETH) have also consolidated sharply, and are trading around 2022 lows.

But this trend could see a reversal if April U.S. inflation data comes within expectations later in the day. Major cryptos are also trading at attractive valuations after their recent plunge, making them primed for a bounce-back.

Favorable U.S. CPI could power a crypto rally

The U.S. Consumer Price Index (CPI), which measures the prices paid by consumers for certain goods, is expected to show a reading of 8.1% later in the day- lower than March’s reading of 8.5%, according to data from Investing.com.

A confirmed dip in the CPI data could show that U.S. inflation has peaked, and that the Federal Reserve will not raise rates too sharply to control inflation. This scenario is expected to be largely positive for risk-driven markets, including crypto. The Fed’s rate hike earlier in May had served as a trigger for the ongoing crypto crash.

But a higher-than-expected reading, or even one that outpaces March’s numbers, could trigger a fresh round of selling in the market. The reading is due at 8:30 AM EST.

As of March, U.S. CPI is trending at a 40-year high due to a prolonged period of loose policy, and immediate shocks from the Russia-Ukraine war. Fuel and food prices are among the biggest contributors to this rise.

Bitcoin, other tokens in holding pattern before CPI

Bitcoin, along with the broader crypto market, appeared to be moving little ahead of the CPI data. Given that the market could go either ways after the reading, traders were holding off on making any large bets.

Bitcoin is holding around $30,000 for the past two days, while Ethereum is hovering just below $2,500. Both tokens had crashed to 2022 lows this week.

But by far, Terra (LUNA) is the worst performer through this crash. The de-pegging of the UST token caused LUNA to lose over 90% of its value, with traders still dumping the token.