Bitcoin rallies to 3-week highs ahead of US CPI

Bitcoin has been stuck between $16k and $18.5k for 2 months, and currently, it has taken off above the $17,000 mark but doubts do exist among traders ahead of the key CPI data for December in the United States on Thursday, meanwhile, comments and remarks by Fed officials are closely watched.

In a new year’s boost, the BTC/USD pair is currently navigating levels that have not been seen on charts since December 16, with the weekly closing price at $16,950 providing a robust cause for optimism. The latest price action precedes a conspicuous macroeconomic week for crypto markets.

Jerome Powell, Fed Chair, will also deliver a speech on the state of the US economy, with inflation on the radar. Inside the crypto space, FTX contagion continues, with Digital Currency Group (DCG) at odds with institutional clients over its handling of solvency problems at subsidiary Genesis Trading.

At the same time, Bitcoin still shows signs of recovery from the FTX turmoil, with miners among those catching a break. Bitcoin managed to spike higher at the Jan. 9 weekly close.

Despite only adding a few hundred dollars, the move on BTC/USD is obviously noticed given the extremely compressed trading range in place for many previous weeks. Eyeing potential continuation, traders were less than willing to change their longer-term conservative perspective. Onwards and upwards to the $17,300 – $17,500 target range, traders are able to take some profit.

All eyes, including those of the Fed, are focusing on inflation data this week with the December print of the Consumer Price Index (CPI) due for release. The CPI data is a key component of Fed policy, and traders and analysts alike are keenly aware that the signals it provides can lead to shifts in its stance.

Recently, CPI has been declining, hinting that the Fed’s existing interest rate hikes have had a positive impact on inflation. Should this continue or even decline more than expected, hopes that the Fed will decrease rate hikes faster, or even cancel them altogether, will increase.

This, in turn, provides a window for risk assets including crypto to gain, as Fed policy easing ignites appetite for risk. Expecting enormous volatility, huge cash position and light position size after the CPI.

Others noted the unusual timing of the CPI schedule, with the data coming two days after a speech on the economy by Fed Chair, Jerome Powell. Unfortunately or fortunately the speech is on Tuesday while CPI on Thursday so any hawkishness will be undone post CPI figures on Thursday and market reactions to Powell’s speech may well amount to noise.

CPI inflation is unlikely to fall as low as 2%, let alone go negative. But, the Fed will return to QE and the official inflation rate will hit a new high. The unofficial actual rate will hit a new all-time record high.

Exposure to FTX heightened pressure on certain DCG subsidiaries in an increasingly complex story which has even raised questions about the future of the largest institutional Bitcoin investment vehicle.