As we know, Bitcoin – the largest cryptocurrency in the world, often fluctuates wildly on the day the US releases the CPI. So what is the CPI and why has it had such a big impact on the crypto market?
What is the CPI?
CPI stands for Consumer Price Index, which is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. This index is considered the most widely used measure of inflation.
As inflation rates are constantly rising in the US, the CPI is also at a high level. The US inflation even hit a new 40-year high in May, leading to a decline in the price of Bitcoin and the rest of the market as well.
How does the CPI affect the crypto market?
The CPI index is usually released by the US Bureau of Labor Statistics around the 10-15th of each month. Although the CPI is somewhat predictable, no one can predict the exact number that causes anxiety among investors. Moreover, the CPI also affects how the government reacts and takes measures to combat inflation.
For example, if the CPI is higher than expected, the government may continue to raise interest rates to curb inflation. While low rates help juice the economy, high interest rates do the opposite because they will make the economy slow by dampening consumer demand. Bonds, stocks, and real estate may also decrease in value with higher rates.
Although crypto is still a niche market with a total market cap of less than 1,000 trillion USD, many large firms and investors have entered this market, so it can be even more affected than traditional markets.
The US plans to announce its inflation rate for August on Oct 13 and ahead of the US inflation report, Bitcoin dropped below the $19,000 threshold, bottoming at $18,950. Other major altcoins also fell slightly – not a deep fall but was enough to make the market sink into the red.
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