Bitcoin holders brace for impact as BTC correlation with stocks increases ahead of US CPI release

• Bitcoin holders are watching Tuesday’s US CPI data release with renewed focus as the correlation between crypto and tech stocks climbs to 0.74. 
• The core CPI is forecast to drop to 5.5% from 5.7%, however a better-than-expected figure could dash hopes of a Fed pivot. 
• Higher-than-expected inflation would weigh on risk assets including cryptocurrencies.

Experts predict the US Federal Reserve will continue slowing rate hikes with the soon-to-be -released core CPI, which is forecast to come out at 5.5% in January, after printing 5.7% in December 2022.

This should be positive for risk assets such as equities and also cryptos which enjoy a high correlation with stocks. 

The correlation between Bitcoin and the tech-heavy Nasdaq index, for example, has climbed from -0.12 to 0.74 within the past four weeks. 

This suggests the US Consumer Price Index (CPI) data release, scheduled for today, February 14, at 13:30 GMT could have a big impact on both assets classes. 

Also read: US CPI Preview: Goldman Sachs, WSJ’s Timiraos tease upside surprise from January inflation

US CPI expectations for January 2023

The key CPI data, which is released by the US Bureau of Labor Statistics, is expected to show annual headline CPI plummet to 6.2%, from 6.5% in December. Core CPI figures, that exclude volatile food and energy prices are expected to print 5.5% YoY, down a 0.2% from the previous month. 

US CPI release expectations as seen on the FXStreet economic calendar

While experts do not expect surprises in monthly CPI releases, the massive difference between expected and actual US Nonfarm Payroll numbers proved bearish for Bitcoin and cryptocurrency prices, last Friday, February 10, and there is a risk the same could happen again. 

Should CPI come in higher than expected, risk assets could witness a bloodbath, wiping out gains from the past thirty days. 

How Bitcoin and cryptocurrency prices will react to US CPI release 

Bitcoin and cryptocurrency prices have suffered a decline over the past week as a result of the US regulatory crackdown on crypto exchanges and stablecoins, in which they are now considering the latter “unregulated securities.”

With the upcoming US CPI release there is now a risk of further volatility. Since markets have already priced in expectations, a better-than-expected figure could dash hopes of the US Federal Reserve’s pivot in favor of easing. Technology stocks and cryptocurrencies could tumble on the news. 

Experts at QCP Capital believe, February 14’s CPI price is important to determine the extent of downside in Bitcoin and cryptocurrency prices. 

Yohay Elam, Senior Analyst at FXStreet was quoted as saying:

I would like to emphasize that the US Consumer Price Index report is the No. 1 market mover, triggering massive volatility.

QCP Capital’s analysts argue that risk assets have not adjusted to rising rate expectations and Tuesday’s CPI print will bring all markets in line. A higher-than-expected figure would trigger a sell-off in US equities and Bitcoin; a lower number a rally. 

Analysts emphasized that a high number for January’s CPI data is baked into consensus. 

Will Bitcoin’s rising correlation with tech-heavy Nasdaq result in jeopardy

Bitcoin holders now share Wall Street’s risk appetite as Bitcoin’s correlation with Nasdaq has climbed to 0.75, its highest level since November 2022. 

The crypto market is back in line with technology stocks. Events that trigger a rally in tech stocks could prove bullish for Bitcoin and cryptocurrencies and negative catalysts, like a higher-than-expected CPI print could drag both tech stocks and cryptocurrency prices lower.