What happened
Cryptocurrencies rose today as investors cheered better-than-expected inflation data that suggests the Federal Reserve's rapid interest rate hikes this year are starting to do their job.
Since late afternoon yesterday, the price of the world's largest cryptocurrency, Bitcoin (BTC -0.64%), has traded 3.8% higher as of 11:36 a.m. ET today, hovering just under $18,000.
Meanwhile, the price of the world's second-largest cryptocurrency, Ethereum (ETH -0.03%), traded 4.6% higher, while the price of the meme token Shiba Inu (SHIB -2.51%) traded 2.9% higher.
So what
Investors were anxiously awaiting the latest reading for the Consumer Price Index (CPI), which tracks the prices on a market basket of consumer goods and services, enabling investors to gauge inflation.
Image source: Getty Images.
In November, the CPI rose 0.1% from October and was up 7.1% year over year, both numbers that came in below economist projections. It's also the second straight CPI report supportive of the idea that inflation is cooling, and it's been hard to get two consecutive reports this year.
There was also a more widespread easing of prices. Food-at-home prices, such as for groceries, rose only 0.5% in November from October, which is the smallest growth seen in that category in many months. Energy prices in the month fell 1.6%, used-card prices fell 2.9%, and transportation and medical services fell 0.1% and 0.7%, respectively.
The one blemish on the largely positive report is that shelter prices still rose 0.6% over the month, and the rent index rose 0.8%. Shelter is a big expense in a consumer's life and therefore can lead to lingering inflation.
Crypto, specifically, is benefiting because it's a risk-on asset, and those have not fared well in the face of rising interest rates. Rising interest rates make safer assets like bonds yield more, which leads investors to demand even higher returns from riskier assets, and Bitcoin and the entire crypto market already went on an extremely bullish run in 2021.
But after today's report, benchmark bond yields like those on U.S. Treasury bills are falling, which makes riskier assets more attractive.
The crypto market also really needed some good news today, as the FTX debacle continues to weigh on the entire industry. Last night, FTX's founder, Sam Bankman-Fried, was arrested in the Bahamas. Federal prosecutors in New York have filed criminal charges, and the Securities and Exchange Commission (SEC) has also charged Bankman-Fried with misleading investors.
"The uncertainty around further contagion [from FTX] is still the main overhang, and any bad news there could send prices much lower, but smart investors are weighing probabilities here," Noelle Acheson, the former head of market insights at Genesis, recently told CNBC.
Now what
Prior to the FTX meltdown, inflation and rapidly rising interest rates had been the major factor hurting crypto. Today's CPI report further supports the idea of the Fed ending its rate-hiking campaign sooner than later, not that it's done just yet.
I suspect the FTX situation will continue to weigh on the sector, but I continue to believe that Bitcoin and Ethereum are here to stay for the long term. The FTX situation, while likely a massive case of fraud, really has done nothing to change my outlook on Bitcoin and did nothing, in my opinion, to call the token into question.
I continue to have no interest in Shiba Inu because its network does not seem technically advanced compared to other crypto networks, and it does not have any special real-world use cases.
