Will it shake the crypto market?

US CPI data is expected to release today at 12:30 UTC. The crypto market is bracing itself for what may be a massive rally or a halt. Will consumer inflation data shake up the crypto markets?

After the crypto market rallied around producer inflation data or PPI easing by 0.7% in August, many traders are wondering what to expect when the US CPI data rolls around at 12:30 UTC today. According to a recent Reuters poll, economists project that consumer price index is set to increase by 0.3% on a monthly basis in August, following a 0.2% rise in July.

CPI is expected to have grown 2.9% year-on-year, compared to 2.7% in July. However, there is also a possibility that the CPI figure could come in harder than expected.

A weaker CPI could reinforce traders’ expectations on monetary easing, especially from the Federal Reserve. The possibility of The Fed initiating an interest rate cut by 25 basis points at its meeting next Wednesday is still in the running. Meanwhile, investors also priced in a slim possibility of 50-basis-point reduction, as per the CME FedWatch tool.

If the US CPI data results come out as expected, with inflation being on the rise, gold and alternative assets like crypto could gain a much needed boost. Seen as a hedge against inflation, higher inflation rates could be a good sign for crypto traders that the market could see the beginnings of another rally.

However, a lower-than-expected inflation rate could strengthen the dollar and have the opposite effect on alternative assets like gold and crypto. An inflation rate that’s too high could also lead the Fed to take a more conservative approach and bail on cutting interest rates, which would halt the crypto rally.

The crypto market braces for US CPI data

According to data from CoinGecko, the overall crypto market has been on the rise as of late. Some of the major cryptocurrencies have been in the green zone for most of today. Bitcoin (BTC) has risen by 1.4%, Ethereum (ETH) has jumped by 2.6% and XRP (XRP) has gone up by 1.1%.

The overall crypto market cap managed to breakthrough the $4 trillion psychological barrier, skyrocketing by 1.6%.

The largest cryptocurrency by market cap, Bitcoin has risen from lower levels and is trading above the $114,000 mark, consolidating after a recent rally. On the short-term chart, momentum looks muted, with the RSI hovering around 35 to 40, suggesting a slightly bearish to neutral bias. Price action has stalled near resistance just above $114,000 to $114,250, while immediate support sits at $113,500.

This ongoing compression reflects a market waiting for a catalyst, and today’s US CPI data release at 12:30 UTC is poised to provide exactly that. If the US CPI data comes in softer than expected, traders are likely to see it as a green light for the Federal Reserve to cut interest rates.

This in turn could weaken the dollar and increase demand for risk assets like Bitcoin, fueling a potential breakout above the $114,250 resistance zone.

However, an unexpected turn of events could see the CPI signaling higher inflation pressure which could delay the Fed easing and strengthening the U.S. dollar. Bitcoin may face rejection at resistance, risking a drop back to the $113,500 level, and if that floor fails, a deeper correction toward the $110,000–$107,000 range becomes possible.

Seeing as how the market has already priced in softer inflation after weaker PPI data earlier this week, the downside reaction to a surprise beat on CPI could be sharp.

Just a day prior, Binance saw its stablecoin reserves surge to a new all-time high. With the addition of $6.2 billion, its net stablecoin inflows have reached at least $39 billion. An increase in stablecoin deposits could mean that traders are moving more of their funds onto exchanges, preparing to deploy them into crypto assets when the time comes.