The US CPI data was released just a few hours ago. We didn’t crash, and we didn’t rally on the news immediately. What does this tell us, and how will it influence the crypto market?

Risk assets profited from the expectations

The market reacted positively since the expectation of 6.5% inflation was met in December 2022. It was this expectation that led to rally of stocks and crypto that are both being considered a risk asset. Investors believe that the lowering inflation will considerably adjust the Fed’s policy.

It is true that the Fed already considered smaller rate hikes, but that isn’t exactly the end of quantitative tightening. There is still a land mile to go until the 2% target rate is met and until that day, the FOMC will most likely consider rate hikes between 25 bps and 50 bps. The same old game that started in 2022 will be continued in 2023 only in smaller steps. That is, of course, if not an unforeseen event calls for more drastic actions.

What is important to keep an eye on?

It is important to remember that the crypto market is not only driven by the Fed and inflation, but also by intrinsic fundamental developments. Many analysts believe that crypto would have done better without the FTX drama, but there are also positive developments going on. Such as the race for providing the best and most promising staking protocol on Ethereum or NFTs and the broader development of Web3.

These trends could provide an opportunity as soon as the tide is turning and the overall economic outlook is better. That being said, we still have to listen from time to time to Jerome Powell speeches. With the markets being so eager for a relief, it might even be enough if he hints a pivot. Again, his goals are clear, and the more concerning question is if he is going to manage a soft or a hard landing on the 2% target.

The crypto markets remain cautiously optimistic at the time of writing, with Bitcoin holding above $18,000 and Ethereum staying in close range to a $1,400 price target. The next FOMC meeting will be held at the end of this month, and Jerome Powell will once again enlighten us on the next rate hike. It remains to be seen if this will add fuel to the current bullish sentiment.