Have you ever thought of the cryptocurrency market as a wild whirlwind or rollercoaster in which the ups make your heart leap for joy and the downs make your stomach churn with fear? Yes, you are not alone! But here’s something you may not have realized: many of those thrills and spills can be traced back to just two acronyms which sound somewhat boring at first hearing. Yes, I’m talking about CPI (Consumer Price Index) and FOMC (Federal Open Market Committee).
These two may sound like the names of some Somerset-based New Wave bands from the early 1980s, but they actually play crucial roles in whether your beloved Bitcoin or Ethereum performs well on any given day.
The CPI Effect: Inflation’s RollerCoaster With Cryptos
In the end, the CPI is just another way of saying “how much do your groceries and rent go up in price every year?” Yes, it’s inflation. But here’s where things get lively: when those CPI figures roll out of the oven hot and inflation appears to have been gorging itself on too many steroids, financial experts and enthusiasts alike start to get ants in their pants.
Why then? Because high inflation almost always implies that the dollar, which used to be as heavy and strong as Paul Bunyan in the lumber camp, has become nothing more than Monopoly money with red hotels upon Boardwalk and Park Place.
Cryptocurrencies, which have often been called “the digital gold,” always seem like a good hedge against inflation. So, when the CPI report comes out and inflation has been shooting up like a rocket launch, you see Bitcoin strut its stuff buffed up to take over. By contrast, if inflation is subdued, Bitcoin might simply go back to sleep or tune in for reruns of “Friends.”
The FOMC Recap: Interest Rates and the Psychology of Crypto
Let’s talk about FOMC, the elite club of the Federal Reserve that determines whether interest rates should rise, fall, or stay where they are. Its gatherings are like the family reunions where they decide whether to tighten their belts or go completely crazy on a whim with colourful bursts like splurging for something expensive even though it’s not necessarily what you need and might just end up going to waste.
But when the FOMC votes for a raise in interest rates, it’s in essence further lowering the cost of borrowing. This usually means making the dollar stronger; and it makes risky assets like crypto less attractive. In this light, you might say the dollar will suddenly become the popular jock at a high school dance who everyone wants to talk to after they had gotten so busy looking at crypto the whole time.
Conversely, if the FOMC keeps rates low or cuts them, this is good news for crypto! Lower rates mean that the dollar is worth less, and people start taking chances with riskier assets. It’s like the school’s valedictorian that’s suddenly looking a lot more attractive as someone to date now because the jock is down with flu.
So, What Happens Today?
Mixing the suspense of a CPI report, which comes in a few minutes from now, with an FOMC meeting is like holding a double birthday party: there are many possible outcomes, and it guarantees tension. If today’s CPI report suggest that inflation is starting to simmer while the FOMC decides to keep the interest rates low, then you could see Bitcoin doing the moonwalk.
However, do remember, while this is all one big numbers game, trading crypto on the basis of these indicators alone is a bit like trying to predict the next move your cat will make; which is frustrating and often vain but always entertaining.
Final thoughts
Understanding the CPI a and FOMC will help you make more informed decisions in your crypto trading adventures. Cryptocurrency is influenced by a host of factors, and these are just two wild cards. Always do your homework, keep in touch with the media, keep a crypto trading diary as it will make for an interesting read in a few years no matter where prices go! So strap in, fasten your seatbelts, hold tight your hands and get ready for the fun ride that is sure to come!
