US CPI Comes In At 3%, Crypto Market Crash Imminent?

The long-awaited US CPI inflation for January comes in hotter at 3% on a year-over-year (YoY) basis, up from the 2.9% noted in the prior month. This higher-than-anticipated inflation figure has sparked concerns over a potential crypto market crash ahead. Notably, digital assets space have faced immense volatility lately due to macroeconomic concerns and the Fed’s hawkish stance which has weighed on the investors’ sentiment.

US CPI Inflation Comes In At 3%

In the latest development, the Labor Department reported that the US CPI inflation comes in at 3%, up from the prior month’s reading of 2.9%. On a monthly basis, the inflation rises to 0.5% in January, up from the 0.4% spike noted in the prior month. Notably, both these data come in hotter than the market expectations.

Simultaneously, the Core CPI, which excludes the food and energy prices, came in at 0.4% last month, up from the prior month’s figure of 0.2%. On the other hand, the core US CPI on a YoY basis soars to 3.3% as compared to December’s figure of 3.2%. Wall Street was expecting the Core CPI to come in at 3.1% on a YoY basis and 0.3% on a monthly basis.

These hotter-than-expected figures have added pressure on the investors’ sentiment who were already trading cautiously due to broader macroeconomic concerns. Notably, the Federal Reserve has provided a hawkish tone recently with their rate cut plans, which has already dampened market momentum.

Now, this spike in US CPI data, while the market was expecting the cooling inflation figures, has further led investors to panic. Besides, it would also provide more space for the central bank to move ahead with its hawkish plan.

Crypto Market Retreat After US CPI Release

Following the US CPI release by the Labor Department, the crypto market faces a massive selloff. The global crypto market cap fell more than 3.3% to $3.1 trillion. BTC price fell sharply by around 3% to $94,000 from the $96,488 level within minutes after the release.

This indicates how this gloomy data has impacted the market sentiment. Notably, the inflation woes have long impacted the market sentiment, forcing many to stay on the sideline. However, with the cooling US Job data from last week, the market was expecting cooling inflation figures this week.

Meanwhile, the CME FedWatch Tool showed that the US Federal Reserve is likely to keep the interest rates unchanged at their next gathering. Furthermore, Fed Chair Jerome Powell also hinted recently that the central bank would move very cautiously with their policy rate plans, which has dampened the market sentiment.

Traders have also moved their projections about a Fed rate cut in October to December, a development that further presents a bearish outlook for the market since investors are less likely to allocate more capital to cryptocurrencies with no rate cut in sight. However, despite the Fed’s reluctance, US President Donald Trump continues to pressure the Central Bank to lower rates, although it remains to be seen if Powell and the committee will listen.

What’s Next For The Crypto Market?

The crypto market has remained volatile lately due to the absence of any positive catalysts in the market. Besides, this recent US CPI data has further weighed on the traders’ sentiment, indicating further declines ahead. Notably, the US 10-year bond yield rose 2.05% to 4.630 following the release. On the other hand, the US Dollar Index was up 0.42% to $108.290.

Having said that, it appears that the selling pressure is likely to continue ahead. However, in an unexpected development, the market rebound recently even after US PPI comes in hotter-than-expected but the crypto market still went up after that.

Despite that, market experts also expect a downturn momentum ahead for the crypto market. In a recent X post, analyst Mister Crypto highlighted the recent US CPI release and said that this is “Bearish For CRYPTO.”

But looking at the crypto market reaction after the US PPI data, it appears that the investors have shrugged off the inflationary concerns. Besides, it appears that the market participants are also considering the crypto market, especially BTC, as a safer haven during this economic turmoil.