U.S. Inflation Report Could Spark Bitcoin Volatility Amid Expectations of a YoY Rebound
The U.S. Consumer Price Index (CPI) report, set for release on Wednesday, could reignite price volatility in bitcoin (BTC) after a brief 48-hour lull. The report is expected to show headline inflation increasing by 0.2%, ending a six-month streak of declines last seen in March 2024.
A Tumultuous Week for Crypto
The cryptocurrency market has been anything but quiet since Donald Trump’s presidential victory on Nov. 6. Following the election, the total crypto market cap surged from $2.2 trillion to $3 trillion before settling near $2.8 trillion, according to TradingView. Bitcoin, the market leader by capitalization, reached an all-time high of $90,000 on Nov. 12 before retreating slightly.
Rising Inflation Expectations
The CPI data, due at 8:30 AM ET, is projected to show a year-over-year increase of 2.6% for October, up from 2.4% in September, per FXStreet. This marks the first year-on-year increase since March, highlighting persistent inflationary pressures.
Core inflation, which excludes volatile food and energy prices, remains a significant concern. After falling from 3.9% to 3.2% earlier this year, it ticked back up to 3.3% in September, complicating the Federal Reserve’s fight against inflation.
Bond Yields Reflect Persistent Inflation Concerns
U.S. Treasury yields have surged despite the Federal Reserve’s recent rate cuts. The 10-year yield climbed from 3.6% to 4.4% following a 50-basis-point cut in September, while the 3-month Treasury yield sits at 4.6%. This suggests that markets are pricing in only modest further rate reductions, signaling that inflation remains far from subdued.
Bitcoin’s Volatility on the Rise
Options market data reflects heightened expectations for price swings in bitcoin. Implied volatility for contracts expiring in a week has jumped from 40% to 90%, driven by BTC’s sharp climb to $90,000. According to Glassnode, implied volatility measures market sentiment and tends to rise with increased realized volatility.
Historical CPI Impact on Bitcoin
Bitcoin’s reaction to inflation data has varied throughout 2024. Early in the year, hot inflation prints drove negative price action, with BTC dropping as much as 7.5% on Jan. 12 following a stronger-than-expected December inflation report.
However, as inflation began to cool, bitcoin’s response became more positive, with the cryptocurrency rallying 6.7% on Jul. 15 amid slowing price pressures. More recently, inflation data has had minimal impact, with BTC exhibiting smaller 0-1% movements.
What to Expect This Time
As inflation is projected to rebound, the dynamics may shift again. Combined with a spike in implied volatility and expectations of higher headline inflation, bitcoin could be poised for significant price swings later today. Whether this volatility results in another leg higher or a bearish pullback remains to be seen.
