Bitcoin Price Drops as Inflation Reduces Chances of Fed Rate Cuts

The price of Bitcoin saw a sharp decline on February 13th following the release of a higher than expected US inflation data for January. 

The crypto market reacted negatively to the hotter inflation figures, which have reduced the chances of the Federal Reserve cutting interest rates in March. 

Bitcoin Price Fell Below $49,000

Bitcoin fell by 3.8% following the inflation data release, dropping from around $49,100 to bottom out at $48,435 on Bitstamp. The price decrease came as US inflation for January exceeded market expectations. 

The consumer price index (CPI) rose by 0.3% month-on-month, while the year-on-year figure came in at 3.1%. Both numbers were 0.1% and 0.3% above economist predictions.

The higher inflation has led to markets reassessing the likelihood of a Fed rate cut in March. Prior to the data, the chances of a cut were around 17.5% but this has now fallen to just 8.5% based on CME Group's FedWatch tool.

Hot Inflation Data Surprises Markets

The hotter than anticipated inflation figures took the markets by surprise. Shelter costs were a major contributor, rising 0.6% in January and accounting for over two-thirds of the overall monthly increase.

Food prices also rose with the food at home and food away from home indexes increasing 0.4% and 0.5% respectively.

However, a 0.9% decline in energy costs, led by falling gasoline prices, helped partially offset the increases. 

Overall, the data shows inflationary pressures persist despite the Fed's series of jumbo rate hikes in 2022. Avoiding a premature rate cut is now the central bank's top priority according to analysts.

 Bitcoin ETF Flows Remain Positive

Bitcoin spot ETFs saw continued inflows, albeit at a slower pace than in previous sessions. Popular trader Daan Crypto Trades noted ETFs are now absorbing new Bitcoin supply at 12 times the rate it is created.

However, the positive ETF flows were not enough to prevent Bitcoin's price slide. Outflows from the Grayscale Bitcoin Trust totaled around 2,400 BTC or $117 million based on data from Arkham.

In summary, renewed inflation worries have dealt a blow to risky assets like Bitcoin. The hotter than expected CPI data has reduced the chances of a near-term Fed rate cut, placing downside pressure on the cryptocurrency.