Bitcoin’s value surged concurrently with a more favorable than anticipated Consumer Price Index (CPI) report, which also had a positive impact on the stock market. This surge in Bitcoin was triggered by the CPI data, suggesting a quicker than expected decline in inflationary pressures. Consequently, during the Wall Street trading session on November 14, Bitcoin’s price targeted the $37,000 level, boosted by the latest U.S. inflation figures that came in below initial forecasts.
Bitcoin and Stocks Receive a Welcome Boost from CPI Data
The recent movement in Bitcoin’s price, which showed signs of recovery, can be linked to key economic data released in the form of the Consumer Price Index (CPI) for October. This connection was highlighted by the data and analyses from Cointelegraph Markets Pro and TradingView, two prominent financial analysis platforms.
The CPI is a critical measure used to assess inflation by tracking the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. The October CPI data was particularly noteworthy because it indicated a slowdown in the rate of inflation, a significant economic indicator that often influences financial markets, including cryptocurrencies like Bitcoin.
What caught the attention of market analysts was that the CPI figures came in slightly lower than their predictions. Both the year-on-year (comparing the current month with the same month in the previous year) and the month-on-month (comparing the current month with the previous month) inflation rates were 0.1% lower than expected. Specifically, the report showed an annual inflation rate of 3.2%.
To provide a more detailed perspective, it’s important to differentiate between the headline CPI and the core CPI. The headline CPI includes all items, whereas the core CPI excludes food and energy prices, which are typically more volatile. In this case, the core CPI recorded a 4.0% increase over the year, which, although significant, represented the smallest 12-month change since September 2021. This data suggests a slowing down or deceleration in core inflation trends, which is crucial because core inflation is often considered a more stable indicator of long-term inflationary trends.
The U.S. Bureau of Labor Statistics, which released this data, highlighted these findings in their official statement. They emphasized that the all-items index, which reflects the broader measure of inflation, had increased by 3.2% in the 12 months ending in October, a rate lower than the 3.7% increase seen in the year ending in September.
The implications of this slowdown in inflation are manifold. For Bitcoin and other cryptocurrencies, lower inflation rates can be perceived as positive, as they might indicate a more stable economic environment and potentially lower interest rates, which can make riskier assets like cryptocurrencies more attractive to investors. This connection between the CPI data and Bitcoin’s price movement underscores the interplay between macroeconomic indicators and cryptocurrency markets.
Stocks and Bitcoin React to Shift in Inflation Trend: CPI Data Spurs Market Optimism
In contrast to October, where the Consumer Price Index (CPI) was just one of several inflation metrics that exceeded market expectations, the recent situation presented a notably different scenario. The stock market responded positively to this change, especially evident at the opening of Wall Street, where the S&P 500 saw a 1.5% increase on that day.
Highlighting the persisting trend of high inflation, The Kobeissi Letter, a financial commentary resource, observed that inflation has been above 3% for 31 consecutive months. However, they pointed out that the trend seems to be shifting towards a decline. Despite Kobeissi’s usual skepticism towards the Federal Reserve’s policies in the current inflationary climate, they acknowledged that the latest CPI data was a favorable outcome.
Bitcoin, in response to the recent CPI releases, showed a relatively muted reaction. The cryptocurrency revisited its intraday low before gradually climbing towards the $37,000 mark, although it remained within a certain trading range. An analysis of the market composition revealed interesting dynamics. Material Indicators, an on-chain monitoring resource, noted that overall market liquidity was low, a factor that can contribute to increased volatility.
Bitcoin's Rise Fueled by Retail Investors as Whales Stay Cautious, Binance Data Reveals
The behavior of major Bitcoin investors, often referred to as ‘whales’, has recently shown a trend of restraint on cryptocurrency exchanges. This observation was reported by Material Indicators, a firm specializing in analyzing market trends and data. In contrast to the subdued activity of these large-scale investors, retail investors – typically individuals or smaller-scale traders – have been noticeably increasing their investments in Bitcoin.
A particularly interesting development was noted in the BTC/USDT (Bitcoin to US Dollar Tether) order book on Binance, which is one of the world’s largest cryptocurrency exchanges. Material Indicators highlighted that it was primarily the smallest classes of orders driving the market. These small-scale buyers were actively purchasing Bitcoin, a trend starkly different from that of the larger investors.
One key aspect of this situation was the liquidity near the active trading zones. Liquidity, in this context, refers to the ability to buy or sell an asset without causing a significant impact on its price. Material Indicators pointed out that this liquidity was relatively low in the areas where trading was most active. This scarcity of liquidity meant that if whales – who typically trade in large volumes – were to place substantial orders, it would result in significant ‘market slippage.’ Market slippage occurs when there is a difference between the expected price of a trade and the price at which the trade is actually executed, often due to a lack of sufficient market liquidity to absorb large orders smoothly.
As a result of this dynamic, with whales being cautious and the market liquidity being low, it was the smaller order classes that were influencing Bitcoin’s price. These smaller buyers were effectively pushing the price of Bitcoin upwards, providing support to the cryptocurrency’s value above the $36,000 mark. This trend was clearly observed through Material Indicators’ FireCharts Cumulative Volume Delta (CVD), a tool that visualizes the buying and selling pressure in the market.
Expert Advises Embracing Bitcoin Price Pullbacks
Despite a roughly 4% decline from its 18-month peak earlier in the month, Bitcoin’s price movements continued to garner positive reactions from market observers. These experts noted that such downturns within a broader upward trend were not just common, but also a healthy market dynamic.
James Van Straten, a research and data analyst at the crypto insights firm CryptoSlate, shared insights on X (formerly known as Twitter), emphasizing that a 4.5% drop from Bitcoin’s recent highs was a normal aspect of bull markets. He explained that corrections, which could reach up to 20% due to profit-taking or liquidations, are a typical phenomenon and align with patterns observed in previous market cycles.
Elaborating on CryptoSlate’s analysis from November 13, Van Straten indicated that more substantial corrections in Bitcoin’s price might still occur, especially given its 120% increase year-to-date. He underscored the importance of market corrections, viewing them as essential components that contribute to the overall health and stability of the financial market.
In a separate interview with Cointelegraph, Filbfilb, the co-founder of the trading suite DecenTrader, also forecasted a significant potential drawdown for Bitcoin. He suggested that this could occur before the April 2024 block subsidy halving event, a key milestone in the Bitcoin network that historically has significant implications for its price.
