What to Expect for Bitcoin and Crypto Ahead of This Week's Inflation Data

In brief

• January payrolls rose by 130,000, reinforcing expectations that the Federal Reserve will keep policy rates unchanged in the near term.
• Futures markets rapidly pushed anticipated rate cuts into the second half of the year, tightening financial conditions despite signs of slowing price pressures.
• Bitcoin continued to consolidate after the repricing, with analysts saying elevated yields are weighing on risk appetite even as sell-side pressure shows signs of easing.

Investors are now eyeing this week’s release of January’s delayed inflation print, following a hot labor report on Wednesday that showed the economy added 130,000 new jobs for the month. The release of fresh U.S. consumer price index data, pushed out due to the government’s partial shutdown and now expected Friday, is forecast to show a reduction from the month prior, down 0.2% from December to 2.5% year-over-year. The inflation metric is “more important than employment data,” Derek Lim, head of research at crypto market-making firm Caladan, told Decrypt. “Lower than expected inflation would increase pressure on the Fed to cut rates sooner, which would be good for risk assets.” 

Lower Fed policy rates generally ease financial conditions, lowering discount rates and encouraging greater risk-taking, which has historically supported equities and, in periods of abundant liquidity, crypto. On the other hand, a hotter-than-expected inflation figure could reinforce a “higher-for-longer” rate regime and pressure risk assets, experts told Decrypt. Following the surprise nonfarm payrolls data, experts believe the Federal Reserve is unlikely to pivot toward economic stimulus in the near term. CME’s FedWatch tool shows a 94.6% probability that the Fed will keep the rate unchanged at 3.50%-3.75%. That sentiment has weighed on market expectations, triggering a correction in crypto and risk assets more broadly.

According to Tim Sun, Senior Researcher at HashKey Group, this “good news” for the economy is inherently “bad news” for the market at this stage.  Sun noted that following the jobs data release, interest rate futures were rapidly repriced, and expectations for rate cuts were compressed and pushed back to the second half of the year. “Strong employment suggests economic resilience remains, meaning the Fed has no urgent reason for early easing,” Sun told Decrypt. He added that as long as Treasury yields remain elevated, financing costs and discount rates will struggle to fall, putting sustained pressure on high-risk assets like Bitcoin. While the market remains fragile, Sun suggests sell-side pressure may be nearing exhaustion.  “From the perspective of price action and on-chain distribution, the pace of the decline is indeed decelerating,” Sun said. “However, we have yet to see a signal for a definitive trend reversal.” Bitcoin is down 0.5% over the past 24 hours to $67,200, while Ethereum remains flat at $1,970, according to CoinGecko. The top crypto has been consolidating between $62,822 and $72,000 over the past week, with volatility remaining relatively subdued following the late January and early February selloff.