What happened
Many cryptocurrencies were rising for a second straight day Tuesday following a mixed inflation report Monday and a Senate Banking Committee hearing on the future of crypto regulation.
Since late afternoon Monday, shares of the world’s largest cryptocurrency, Bitcoin (BTC 3.69%), were trading 2.5% higher as of 10 a.m. ET Tuesday. Meanwhile, meme tokens Shiba Inu (SHIB 5.45%) and Dogecoin (DOGE 4.16%) were up 4.9% and 3.9%, respectively.
So what
Investors continue to digest January’s Consumer Price Index (CPI) report, which the Bureau of Labor Statistics released Monday. The CPI tracks the prices of a market basket of consumer goods and services, and is a key gauge of inflation.
Image source: Getty Images.
In January, the CPI rose 0.5% from December and was up 6.4% year over year, coming in above what economists had been expecting. On a core basis — stripping out the more volatile prices from food and energy — the CPI rose by 5.6%. Shelter costs accounted for about half of the rise in prices in January. The report came across as mixed. Yes, there were some signs that inflation is easing, but it may not be a smooth process.
“This report won’t change anyone’s mind about the inflation picture; both hawks and doves will find something to highlight,” wrote Ian Shepherdson, chief economist at Pantheon Macroeconomics, in a research note.
For crypto investors, the inflation outlook is key: If the Federal Reserve can bring it down, it will be able to stop raising interest rates. Higher rates have made riskier assets less appealing to investors, which has contributed to the collapse of crypto prices.
In other news, the Senate Banking Committee held a hearing on crypto regulation Monday, and the members’ mixed perspectives were clearly on display. Senate Democrats expressed more concerns about crypto as an asset class, and indicated more willingness to implement more restrictive frameworks around it. Senate Republicans want more limited regulation, and want to avoid discouraging crypto firms from basing themselves in the U.S.
Partisan gridlock in Congress is music to investors’ ears in this case; the division makes the passage of any comprehensive overhaul of crypto regulation less likely in the near term. That might be seen as a relief after the Securities and Exchange Commission started to come down on crypto firms in the past week, which spooked investors.
In more minor news, The Wall Street Journal reported that the crypto firm Celsius, which has filed for bankruptcy, has a deal in place to to sell its retail platform to NovaWulf Digital Management. If the deal is approved, users who still have assets locked on the platform would be able to get some fraction of their assets back. Given that more crypto firms have declared bankruptcy over the last several months, investors are likely happy to see at least one of these cases heading for a possible resolution.
Finally, Twitter CEO Elon Musk recently tweeted a picture of his Shiba Inu dog Floki at his desk with the caption: “The new CEO of Twitter is amazing.” Musk is an avid supporter of Dogecoin, and meme tokens tend to move higher when he tweets about them positively.
Now what
Ultimately, I don’t think January’s CPI data gave the Fed much reason to consider ending its rate-hiking campaign early; I could see the Fed increasing the benchmark federal funds rate at least one or two more times this year. The Senate Banking Committee’s hearing also left the regulatory picture uncertain. There still could be more restrictive and less-friendly crypto regulations coming.
I expect most cryptocurrencies will continue to bounce around for the time being. But I still like Bitcoin for the long term, and have no interest in meme tokens.