Inflation is in line with the Reserve Bank's target, leading to cautious optimism in the market, with Bitcoin above US$100,000 (A$156,000). The most recent U.S. inflation rate was 2.7% in November, up slightly from September but within the Federal Reserve's expectations. Positive sentiment regarding a possible rate cut by the Federal Reserve is increasing market confidence, especially in cryptocurrencies. Despite concerns about stubborn inflation, the crypto market remains optimistic, supported by solid macroeconomic data and Donald Trump's election victory.
The latest news that inflation is on pace with the Reserve Bank's target has given markets cautious optimism, pushing Bitcoin above US$100,000 (A$156,000).
While everyone would like the Bitcoin market to be uncorrelated, the reality is that humans are still buying (and selling) coins. Considering BTC's volatility, macroeconomic conditions can play an important role in investor confidence and the value of the cryptocurrency.
Inflation data is particularly important because it is an indicator of the overall economic environment and influences the government and Reserve Bank cash rate.
Inflation and interest rates related to the US have a particular impact on most assets, including Bitcoin, as the US dollar acts as the world reserve currency.
Related: Bitwise CIO tackles hot topic: Is it too late to invest in Bitcoin?
Inflation is easing, but problems could arise in 2025
Currently, the U.S. central bank is targeting inflation at 2%, which is well below the post-COVID-19 peak of 9.1%.
According to the latest report, the US inflation rate reached 2.7% in November. This is certainly a slight increase from September's rate of 2.4%, but the overall trend is consistent with the Federal Reserve's model.
Inflation itself is important, but investors are particularly interested in how this will affect the Federal Reserve in December. Sentiment is generally positive, with economists believing inflation is stable enough for the Fed to cut rates by 0.25 to 0.5 basis points.
Lower interest rates are generally bullish for markets because they make money “cheaper” and encourage more aggressive borrowing. Conversely, this can lead to riskier investment behavior. This has benefited the cryptocurrency space in the past (see 2021).
But not everyone is so bullish on the numbers, with some suggesting that inflation may be a bit more resilient than most expect.
The Fed has hinted at four rate cuts in 2025, but some analysts say this rate cut may have to subside if inflation proves to remain stubborn. That's what I think.
It is natural that the degree of relaxation in the baseline will probably be less than in September.
Julia Coronado, former Fed economist
110,000 USD from Bitcoin? December momentum could lead to that point
Despite some concerns about the long-term future of the economy, the crypto market has adopted an “out of mind, out of sight” stance.
Indeed, in the short term, inflation rates and impending interest rate cuts are good news for most asset markets, including cryptocurrencies.
Combine solid macroeconomic data with the momentum of President Donald Trump's election victory and you have the recipe for Bitcoin to break through a sharp speed bump and push prices above US$100,000 (A$156,000) .
The only question remains: How long can Bitcoin sustain these high prices?
