Analysis of the cryptocurrency market: Dropping inflation expectations could indicate a bullish turn for bitcoin

Cryptocurrency Market news: Dropping inflation expectations could indicate a bullish turn for bitcoin.

The Federal Reserve may no longer need to worry about one potential self-fulfilling prophesy as consumer inflation expectations are slowly declining.

Rather than being a scientific law, this investing thesis Any price increases for digital assets could be partially attributed to falls in the value of physical assets.

With gains of 1.5% and 4%, respectively, on greater than-usual activity, bitcoin (BTC) and ether (ETH) got the week off to a good start.

The price hikes happened on the same day that the Federal Reserve Bank of New York reported that consumer inflation expectations in the US were 5% for December, as opposed to predictions of 5.2%.

cryptocurrency markets

The figure of 5% represents the lowest reading since July 2021 and the second month in a row of falls. The Federal Reserve’s attempts to tame inflation are still having an effect on the pricing of bitcoin and ether.


For crypto investors making long bets on either asset, the decline in inflation predictions is a positive development.

The anticipated 5% price increase is roughly in line with what senior Fed officials anticipate for interest rate levels in 2023.

It will be crucial to control inflation if the gap between price increases and rate levels becomes smaller. For instance, the federal fund’s target rate was set between 0.25% and 0.50% in March 2022, when the inflation rate was 8.5%.

In terms of bitcoin and ether pricing, the sooner the difference between inflation and the federal funds rate closes, the sooner markets can start to expect a shift away from monetary tightening, which might have an impact on further price momentum for both.

cryptocurrency markets

After the data was made public, the prices of bitcoin and ether increased by 0.39% and 0.74%, respectively. Prior to the release, both assets were trading somewhat higher, but after the announcement, the gains grew quickly.

The Nasdaq Composite increased while the Dow Jones Industrial Average and S&P 500 declined in response to the report, which had a mixed reaction from traditional markets.

In a speech on January 6, Federal Reserve Governor Lisa Cook emphasized the importance of inflation expectations.

Cook expressed concerns about the possibility of a self-fulfilling prophecy when he said that “if cost shocks and supply disruptions keep inflation elevated for a long enough period, households’ and firms’ inflation expectations could move higher – a development that could put additional upward pressure on inflation.”

In other words, rising predicted prices lead to rising real prices.

Consumer inflation expectations have been on a slow but steady decline since the Fed started tightening in March 2022, according to data.

Gas prices fell 5.9% throughout the specified time period, which is what caused the biggest drop in expectations. With a 2.2% decline, food price anticipations were in second place.

In the long run, customers’ anticipation of reduced prices may cause them to put off buying products, which may result in lower prices, which may increase the amount of money they have to invest in risky assets like bitcoin and ether.

Price trends for ETHER

Over the past five days, Ether’s momentum has accelerated. Its RSI, or Relative Strength Index, has climbed close to 70. The RSI is a momentum indicator that may be used to spot probable overbought/oversold scenarios as well as both trends and trends.

It has a range of 0 to 100, with 30 suggesting that an asset may be oversold and 70 suggesting that an asset may be overbought.

Four out of the last six days have seen Ether breach the top range of its Bollinger Bands. When an asset exceeds the upper bound of the Bollinger Bands, this is frequently considered a positive indication.

Ether has outpaced bitcoin so far this year, growing 5.4% in comparison to the currency.

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