Why the publication date of consumer price index (IPC) almost always causes great volatility within the crypto market? The topic has also been emphasized many times in recent months since its impact directly depends on the crypto-currency market. First of all, you must already understand and know what the CPI shows. This, in order to be able to answer later the reason for the Bitcoin madness every time these figures are published.
What is the CPI, the consumer price index?
In recent months, the rise has had an impact on inflation the whole world. That is why it is one of the economic topics that comes up the most in the discussion. There is no doubt that this inflation is the inevitable consequence of the COVID health crisis that has affected the world for the past two years. Faced with this, all countries have implemented recovery plans to remedy this economic crisis.
Technically, inflation is defined as general price rise. It is usually accompanied by a reduction in the purchase value of money. In fact, it can be estimated using the consumer price index which, according to the United States Bureau of Labor Statistics: a measure of the average change over time in prices paid by urban consumers for consumer goods and services.
This basket of goods and services includes food, energy and electricity in particular. This also applies to vehicles, clothing or even medical care. Experts usually use this basket to compile statistics. Yes indeed the most convenient way to measure inflation. According to the BBC, the highest inflation in 40 years was recorded last June.
Source: Stat
Why does the CPI affect the price of Bitcoin so much?
Simply because traders and investors adjust their positions against the CPI. Note that this IPT is published in a very transparent way between on the 10th and 15th of the month at the Bureau of Labor Statistics. You should also know that the inflation rate has a serious impact. This, to the extent that it will be the duty of governments to respond and find solutions to deal with it.
As a result, the government must introduce more rate hikes. This, with the aim of reducing inflation if the figure ever exceeds the projection. Of course this will affect bonds, treasury yields, but also deposits, etc. Therefore, market participants need to identify and rebalance their positions.
In addition, a good number of institutions and large investors are already involved in the cryptocurrency market. However, it is still there for now niche market. As a result, significant volatility has inevitably resulted in less portfolio rebalancing compared to traditional markets. Let us recall what happened during the day 13 July. The price of Bitcoin went three days with an amplitude that easily exceeded 7%. This is when the BLS shared the CPI figures for June 2022.
In short, CPI release day is always a panic event, more so if inflation hits the economy. In fact, market participants position and adjust their portfolios according to this CPI. This also partly explains why the publication date generates high volatility on the cryptocurrency market, especially on the price of Bitcoin.
Crypto-assets are a risky investment.
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