What happened
Cryptocurrencies shook off mixed inflation data this morning and climbed after what has been a difficult last week for the industry on the regulatory front.
Since late afternoon yesterday, the price of the world's largest cryptocurrency, Bitcoin (BTC -4.16%), traded roughly 2.6% higher as of 11:25 a.m. ET. The price of the world's second-largest cryptocurrency, Ethereum (ETH -3.76%), traded 4.6% higher, while the meme token Dogecoin (DOGE -8.19%) was up 2.4%.
So what
All eyes were on the January reading of the Consumer Price Index (CPI) today, which tracks the prices on a market basket of consumer goods and services and is one way investors gauge inflation.
Image source: Getty Images.
The CPI rose 0.5% in January on a monthly basis, which is the largest monthly increase since October. The CPI was up 6.4% year over year, which is slightly down from December, but overall inflation data came in higher than economists had been expecting.
On one hand, inflation is proving to be more stubborn and persistent than many expected, but I do think investors were somewhat prepared for a tougher month after January's red-hot jobs report that showed the U.S. economy added more than half a million jobs.
Shelter costs accounted for roughly half of the increase in the CPI in January, while energy costs rose 2% during the month and food prices rose 0.5%. Stripping out food and energy, core inflation rose 0.4% during the month and was up 5.6% year over year, slightly above analyst estimates. There were some positive price declines in the CPI, however, with used vehicle prices falling 1.9% and medical care services falling 0.7% during January.
"Inflation is easing, but the path to lower inflation will not likely be smooth," LPL Financial's Chief Economist Jeffrey Roach said, according to CNBC. "The Fed will not make decisions based on just one report, but clearly the risks are rising that inflation will not cool fast enough for the Fed's liking."
Cryptocurrencies got hammered in 2022 thanks to soaring interest rates that were intended to try and calm inflation, so until there is solid proof that inflation is coming down, rates are likely to stay high. Higher rates make riskier assets like cryptocurrencies less appealing. But perhaps crypto investors were expecting worse CPI data heading into today.
The crypto industry has been struck recently by restrictive regulatory moves over the last week. Specifically, the Securities and Exchange Commission (SEC) ordered the Kraken crypto exchange to end its staking-as-a-service program. Then, the crypto firm Paxos was ordered by the SEC and New York state regulators to stop issuing the U.S. dollar-backed stablecoin Binance USD.
Today, the Senate Banking Committee is holding a hearing on the recent crypto crash that will further discuss and perhaps provide insight on the direction of crypto regulation.
So what
Crypto seems to be poking its head up today due to the inflation data, although it may also be taking a breather from the selling over the last few days because the inflation data was mixed and there still seems a regulatory overhang right now.
I still like Bitcoin and Ethereum and do think the two most established cryptocurrencies are here to stay for the long haul. I do not have any interest in the meme token Dogecoin, which I believe offers no real value.
