BTC Rallies as Inflation Slowed Down in December

The Bureau of Labor Statistics (BLS) in the United States released its inflation data for December just a few minutes ago and the annualized figure came

Bitcoin (BTC) price surged nearly 6% on Friday morning after the latest U.S. inflation data came in lower than expected.

This follows a 3.2% rally in the world’s largest cryptocurrency on Thursday, which was catalyzed by a slower-than-expected expansion in producer prices.

After rising to a high of $107,000 on Feb. 2, BTC price corrected by about 5% to a low of $99,000 on Feb. 13. Since then, Bitcoin has been attempting to regain the key psychological level.

Relative to the past 30 days, the net new capital flowing into stablecoins has slowed down considerably. In total, the market value of all stablecoins increased by $30 billion in the past two months.

However, only $3 billion to $4 billion were added to this segment of the crypto market in the past 30 days, suggesting that the capital inflows have stalled.

This observation is also supported by the fact that the total stablecoin supply has only increased by 2% in the past month. In January, the net stablecoin flows were nearly double at $6 billion.

As highlighted in a recent analysis, there seems to be a correlation between the capital flows into stablecoins and Bitcoin’s price movements.

When adjusted for inflation, stablecoin market capitalization reached a recent all-time high of $108,000 for BTC. This level of Bitcoin was last seen in October 2023.

Bitcoin price rallies as U.S. inflation slows down in December. Source: TradingView

Hence, it is safe to say that there’s a correlation between stablecoin flows and Bitcoin’s price.

Based on this analysis and the relative stalled expansion of this segment of the crypto space in the past 30 days, there does not seem to be enough fuel for Bitcoin to experience a rally of a high magnitude.

That does not necessarily mean that BTC may not be propelled to local highs perhaps 5% to 10% higher than the most recent peak but it would be difficult to see its price moving from $100,000 to $200,000 in the next 30 days if stablecoin flows continue to expand at this slow rate.

The Bureau of Labor Statistics (BLS) in the United States released its inflation data for December just a few minutes ago and the annualized figure came slightly below analysts’ estimate for the period.

Last month, prices rose by 3.2% compared to the same period a year ago or 10 basis points lower than the market’s consensus estimate.

Inflation is a critical variable that central bankers take into account to make monetary policy decisions. If inflation is under control, they will be more inclined to keep lowering interest rates, which benefits high-risk assets like cryptocurrencies.

The market responded positively with Bitcoin is surging nearly 6% thus far in the session as lower-than-expected inflation could prompt the Federal Reserve to reconsider its monetary policy decision and perform additional interest rate cuts in 2025.

Yesterday, the producer price index (PPI), which measures how wholesale prices have evolved in the economy, expanded at a lower rate than expected as well at 0.2%. This helped catalyze the rally that we witnessed in the crypto market yesterday, which saw BTC recover strongly from its recent pullback.