Cryptocurrency Prices Surge as US Inflation Skids, SBF Arrest

Cryptocurrency prices surged while American bond yields retreated after the latest American inflation data. Bitcoin surged to $17,800 while Ethereum surged to $1,300. In total, the market cap of all cryptocurrencies surged to more than $878 billion.

US inflation data

As I wrote on Saturday, America’s inflation declined for the second straight month as the price of gasoline pulled back. According to the Bureau of Labor Statistics, the headline consumer inflation dropped to 0.1% in November while core inflation plunged to 0.2%. Economists were expecting the number to come at 0.3% and 0.2%.

Inflation also plunged on a year-on-year basis. The data showed that the headline inflation dropped to 7.1% in November while core inflation dropped to 6.0%. These numbers show that the actions by the Fed are working.

There are more signs that inflation will continue falling in the coming months. For example, oil and gas prices have retreated in the past few months. Also, the key factors that pushed inflation higher a few months ago have reversed.

For example, global shipping costs have eased. Indeed, Maersk, the biggest sea shipping company in the world, fired its CEO after its revenue growth stalled. 

Federal Reserve decision next

The next key catalyst for cryptocurrency prices will be the upcoming interest rate decision by the Federal Reserve. With inflation easing, economists expect that the Fed will sound a bit dovish in its upcoming meeting. Precisely, they expect that the Fed will hike rates by 0.50% after rising by 0.75% in the past 4 meetings.

According to the WSJ, the Fed will then shift to smaller 0.25% increases in the first quarter of 2023. It will stop interest rate hikes in summer and observe trends in inflation. The only uncertainty is on the terminal rate hike.

Sam Bankman-Fried

Cryptocurrency prices also rose as the US indicted Sam Bankman-Fried (SBF), the founder of FTX. The CEO was arrested on Monday at the Bahamas. 

In its indictments, the US accuses SBF of conspiracy to defraud the US, wire fraud, securities fraud, and money laundering. As such, he faces more than a decade in prison. 

As I wrote on Saturday, cryptocurrency prices could recover after the collapse of FTX since it was a ponzi scheme all along. It could also lead to more adoption of decentralized exchanges like GMX and Uniswap.