Bitcoin regained the $100,000 level as US inflation data for November matched expectations. Market participants expect the Fed to cut interest rates by 25 basis points as inflation remains stable. The general cryptocurrency market also rose over 4%, with major altcoins such as XRP, SOL, and ADA leading the rise.
Bitcoin (BTC) soared above $100,000 on Wednesday following the release of US November consumer price index (CPI) data, rising 2.7% in line with expectations. Cryptocurrency investors were quick to react to the report, as market participants currently expect the Federal Reserve (Fed) to cut interest rates by 25 basis points (bps) next week.
Bitcoin tops $100,000 as CPI data fuels crypto market rally
US CPI statistics for November were 2.7% year-on-year, up from 2.6% in October and in line with market expectations. The monthly CPI increase rate in November was 0.3%, slightly higher than the previous month's 0.2%. Notably, core CPI was 3.3%, unchanged from October's rise.
Market participants were expecting a 25bps rate cut by the Fed next week, and the CPI data was in line with expectations. A potential Fed rate cut could boost demand for risky assets such as cryptocurrencies as investors turn to higher-yielding investment products.
This is evidenced by Bitcoin's 6% rebound above $100,000 on Wednesday following the CPI announcement. The cryptocurrency market has also seen significant gains, gaining more than 4% in the past 24 hours.
Top altcoins leading the rally include XRP, Solana (SOL), and Cardano (ADA), which rose 23%, 11%, and 16%, respectively.
Top Cryptocurrencies | CoinGecko
Other sectors also responded well to the inflation statistics. Several meme coins posted double-digit gains, including Dogecoin (DOGE), Shiba Inu (SHIB), Dogwifat (WIF), BONK, and FLOKI.
Similarly, the artificial intelligence token sector soared more than 7%, with top AI tokens gaining more than 10%.
However, despite immediate signs of a crypto rally following the CPI data, James Toledano, COO of Unity Wallet, cautions against the volatility of assets like Bitcoin. He cautioned that investors need to tread carefully given history.
“Bitcoin has a history of extreme volatility and corrections happen all the time so we need to be careful,” Toledano told FXStreet. “The pendulum has swung both ways, and for new entrants to Bitcoin, when prices are at an all-time high in the six digits, especially when the recent sugar hit is largely based on sentiment towards the incoming US administration, I want to be careful about going all in.”
Frequently asked questions about Bitcoin, altcoins, and stablecoins
Bitcoin is the largest cryptocurrency by market capitalization and is a virtual currency designed to function as money. This form of payment is not controlled by any particular person, group, or entity and eliminates the need for third parties to participate during financial transactions.
An altcoin is any cryptocurrency other than Bitcoin, but some consider Ethereum to be a non-altcoin because it is these two cryptocurrencies that forks occur. If this is true, Litecoin would be the first altcoin to fork from the Bitcoin protocol and thus be an “improved” version of it.
A stablecoin is a cryptocurrency that is designed to have a stable price, and its value is backed by the reserves of the asset it represents. To achieve this, the value of one stablecoin is pegged to a commodity or financial instrument, such as the US dollar (USD), and its supply is regulated by an algorithm or demand. The main purpose of stablecoins is to provide an on/off ramp for investors who wish to trade and invest in cryptocurrencies. Also, since cryptocurrencies are generally volatile, stablecoins allow investors to store value.
Bitcoin dominance is the ratio of Bitcoin's market capitalization to the market capitalization of all cryptocurrencies combined. This clearly shows the interest in Bitcoin among investors. BTC's dominance typically occurs around bull markets, where investors turn to relatively stable, high-market-cap cryptocurrencies like Bitcoin. Decreasing BTC dominance usually means investors are moving their capital and profits to altcoins in search of higher returns, which usually causes an explosive rally in altcoins.
