US Consumer Price Index for September Could Provide Push for Bitcoin to Break Out of Its Recent Range

A U.S. inflation report due Thursday might be the catalyst that finally snaps bitcoin (BTC) out of an unusually long spell of uncharacteristically low price volatility, analysts say.

The Labor Department on Thursday is expected to report that the core Consumer Price Index accelerated to a year-on-year pace of 6.5% in September, from August's 6.3%, according to FactSet. This “core” inflation rate strips out the impact of volatile food and energy prices; the “headline” CPI, which includes food and energy items, is already running hot above 8%.

A core CPI of 6.5% would be the highest in four decades – helping to explain the alarm among Federal Reserve officials who have been attempting to restore price stability by tightening monetary policy – and in the process, putting downward pressure on prices of risky assets from stocks to cryptocurrencies.

Analysts at the big U.S. bank JPMorgan say a too-hot CPI would put equities at risk of a 5% tumble.

Depending on the CPI number, both equities and risk assets like cryptocurrencies could move either 3% up or down, according to Florian Giovannacci, head of trading for Covario.

“A higher/lower CPI could easily give us a -3%/+3% on equity, and risk-on assets such as cryptocurrency would react instantly with high correlation,” said Giovannacci.

Bitcoin has been trading in a range between $18,000-$22,400 since the start of September. So the inflation report could be the push that the cryptocurrency needs to break out.

The cryptocurrency is performing similarly to 2018, when in the period of March - November, bitcoin’s price remained around the $6,000 mark and people thought the market had already bottomed, according to Pablo Jodar, a crypto analyst at GenTwo.

“Soon after, it dropped another 50% to $3,000,” said Jodar. “It stayed at that level for several months until the bull market started again.”

“If the CPI data is strong tomorrow, which I think it will be, bitcoin will see another drop to $17,000,” said Jodar.

Conversely, any decrease in the CPI could generate a big rally for the crypto market.

“This is against the backdrop of extreme bearishness in sentiment indicators and positioning, and the rally should last into the start of the Q3 earning season,” said Nauman Sheikh, head of protocol & treasury management at early-stage VC investment and asset manager firm, Wave Financial.

Sheikh says he sees a greater risk that the inflation number comes in slightly above expectations.

“For me, the surprise scenario is if we have softer numbers and the market is primed to rally in that scenario," Sheikh said.