Market Wrap: US Inflation Slows, Crypto Markets Accelerate

Bitcoin’s (BTC) price climbed 4% in the hours immediately after Wednesday morning’s release of the Consumer Price Index (CPI) before slowing later in the day.

The CPI is a measure of inflation in the U.S. that accounts for the price of a weighted average market basket of goods and services purchased by households. Changes in the CPI track changes in prices over time. In July the CPI increased 8.5%, still high but lower than the 8.7% rate that most analysts had predicted and an improvement on June’s 9.1% inflation rate. The June reading represented a four-decade high.

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BTC’s increase more than reversed its 3% decline from the previous day. Altcoins also rose. Ether (ETH), the second-largest crypto by market cap behind bitcoin, recently rose more than 8%. AVAX increased 5%. MATIC and LINK rose 3% and 5%, respectively.

Traditional markets jumped on the CPI news, with the Dow Jones Industrial average (DJIA), S&P 500 and tech-heavy Nasdaq 100 increasing 1.6%, 2.1% and 2.9%, respectively.

In energy markets, the price of crude oil increased 1.2%, while that of natural gas rose 5.4%. Gold, which is often viewed as a hedge against inflation, declined 0.36%.

US Inflation Slows, Markets Respond With Higher Prices

Slowing U.S. inflation was the news of the day for crypto markets.

BTC’s hourly chart showed an immediate reaction to the latest Consumer Price Index (CPI), soaring past $24,000, the upper part of a range that it has occupied for much of the past two weeks as investors savored some rare favorable news about inflation.

The CPI rose 8.5% in July, lower than most analysts’ 8.7% forecast and an improvement on June’s disappointing 9.1% reading.

Subsequent BTC candles showed a narrowing of BTC’s trading range in the hours following the release. Intraday traders appear to have reacted to the Relative Strength Index (RSI) breaching 70 into what is traditionally labeled “overbought” territory. Overbought implies that the magnitude of change in an asset has taken it past its fair market value, making it a candidate to be sold.

Intraday traders of an asset generally hold assets for less than 24 hours. An overbought reading on an hourly chart would signal an intraday trader to exit a position, despite the RSI not indicating the same.

The CPI will strongly affect decisions by the Federal Reserve’s Federal Open Market Committee (FOMC), which sets monetary policy and will next meet in September.

The unexpectedly favorable CPI, which suggests inflation could be waning, may increase the likelihood the FOMC increases interest rates by 50 basis points instead of by a more aggressive 75 basis points.

Tuesday’s Market Wrap showed target rate probabilities prior to the CPI shifting from that day’s 68% chance of a 75 basis point increase to 38%.

BTC’s spot price is approaching an area of high options activity

BTC options activity is showing signs of bullish sentiment. Call open interest exceeds put open interest, resulting in a call/put ratio of 1.85.

A call represents the right but not the obligation to purchase an asset at a specific price, while a put option represents the right but not the obligation to sell an asset at a specified price.

The open interest represents the number of options contracts currently active. When call open interest exceeds put open interest, it implies that more traders are buying calls than puts and thus reflects bullish sentiment.

Currently there are spikes in call open interest at both the $24,000 and $25,000 price levels (with price level often being called the “strike” price). As BTC prices move past $24,000, BTC will likely see increased buying pressure, which could push prices higher. The same holds true for the $25,000 strike price.

Altcoin roundup

• NEAR Crypto Token Pumps After Coinbase Adds It to Listing Roadmap: Near Protocol’s native NEAR token jumped 12% to a high of $5.97 after Coinbase (COIN) added the token to its listing roadmap, which shows assets the cryptocurrency exchange plans to add. Read more here.
• NFT Collections Will Be Regulated Like Cryptocurrencies Under EU’s MiCA Law, Official Says: The remarks come despite previous claims that the innovative ownership tokens would be excluded. A carveout for ownership tokens may prove narrow, meaning issuers have to publish lengthy investor white papers. Read more here.

Relevant insight

• Listen 🎧:Today’s “CoinDesk Markets Daily” podcast discusses the latest market movements and takes a look at Solana DeFi’s startling origin story.
• US Inflation Slowed to 8.5% in July, CPI Report Shows; Bitcoin Jumps:Crypto markets responded favorably after the lower-than-expected reading, which takes pressure off the Federal Reserve to hike rates aggressively at its September meeting.
• Crypto Trading Platform Hotbit Suspends Service Amid Criminal Investigation Into Former Employee:The person worked for the platform until April, and was involved in an external project suspected of violating criminal laws.
• US Senators Warren, Sanders Ask Key Bank Regulator to Rescind Crypto Guidance:The lawmakers also asked a series of questions about how many banks are currently involved in crypto.
• Ripple Labs Weighs Buying Crypto Lender Celsius’ Assets, Reuters Reports:The blockchain payment company is the latest to consider purchasing the assets of the bankrupt lender.
• Elliptic Introduces Product to Track Crypto Flows Across all Blockchains in Single Screening:The blockchain analytics firm says the offering can help thwart exploits on cross-chain bridges.
• Bitcoin R&D Center Vinteum Launches in Brazil:The nonprofit aims to support developers in Latin America.
• Blockchain Payments Platform Ansible Labs Raises $7M in Seed Funding Round:The startup was founded by two former Visa workers.
• DEX Protocol Injective Raises $40M From Jump Crypto, Brevan Howard Unit:The project will use the funds to boost the utility of the INJ Token.
• Crypto Payments Implicated in Alleged Bolton Assassination Plot, US DOJ Says:A member of Iran’s Islamic Revolutionary Guard planned retribution against the former National Security Advisor, according to court documents.

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