US CPI data and its impact on the crypto-currency market

On Thursday, October 13, the United States released its inflation data for the month of September 2022. The US CPI was higher than expected at 8.2% for last month. This shows that the problem of runaway inflation in the US economy persists.

This is probably the sixth consecutive month that the U.S. CPI remains above 8%. As a result, the Fed is expected to continue raising interest rates in the future. According to market analysts, the Fed is likely to raise interest rates to 4.25%-4.5% before reversing course again.

However, this rate could have serious implications for corporate profits and the U.S. economy as a whole. The big question is whether the Fed can pull off a “soft landing“. Several market analysts have suggested that the U.S. economy could enter a recession in the event of a “hard landing“. JPMorgan chief Jamie Dimon recently stated that a recession could occur in the next 6 to 9 months.

How Crypto Reacted to the US CPI

As soon as the CPI numbers for September were released on Thursday morning, the crypto market reacted negatively. The broader crypto market lost over $20 billion in a flash.

The price of bitcoin (BTC) also collapsed instantly by 4 percent, with bitcoin falling as low as $18,400. The correction in the altcoin space was more significant, with each altcoin dropping between 4 and 7 percent.

However, a few hours later, significant short covering took place, with bitcoin and all other digital assets recovering quickly. The rally in the crypto space followed a chain rally on Wall Street. Despite the strong CPI inflation numbers, the Dow and other indices ended the day up over 2%.

📈 Traders shorted #Bitcoin & #altcoins heavily as #inflation news broke. When $BTC hit a 3-week high short vs. long exchange ratio at 2pm UTC, prices reversed course and began rising, many betting against #crypto got liquidated. Prices move toward the crowd’s least expectation. pic.twitter.com/dVgGU5IXwN

– Santiment (@santimentfeed) October 13, 2022

The data provider on the channel Santiment commented short covering by noting that “traders heavily shorted #Bitcoin and #altcoins when the inflation news broke. When $BTC reached a 3 week short vs long trade ratio, prices reversed and started to rise, and many bets against #crypto were liquidated. Prices move to the lower expectation of the crowd“.

In short, short traders were battered within hours of the CPI data release. As we go to press, bitcoin is trading up 3.7 percent at a price of $19,700, with a market cap of $379 billion.