How CPI Announcements Affect Bitcoin Price?

Bitcoin took off in 2009 after the Great Financial Crisis, but had few macroeconomic stress tests to withstand. This is in contrast to gold with its rich history through the ages and different political systems.

Yet gold has a pseudo-limited supply, making its scarcity liquid. New gold veins are found with frequency while Bitcoin has mathematically precise and predictable scarcity, limited to 21 million Bitcoin (BTC). But does that mean Bitcoin is a better hedge against inflation than gold?

How CPI Announcements Affect Bitcoin Price?

On a daily basis, from the Bitcoin (BTC) open price on the day of the CPI report to the BTC open price the next day, Bitcoin price falls or rises regardless of the direction of the inflation rate shift. For example, when the CPI report between March and April 2022 showed a decline of 8.5% to 8.3% (yearly), Bitcoin price fell -11%.

Conversely, Bitcoin’s price rose by 9.68%, following a CPI report showing a decline in inflation from 8.2% to 7.7% (yearly) between September and October 2022.

In May 2024, when the BTC price rose by 7.02% per day after the CPI announcement, the report showed a slight decline from 3.5% to 3.4% (annualized). Notably, when there was an inflation spike of 7.5% to 7.9% in the March 2022 report, Bitcoin price actually fell by 6.37%.

In other words, the logic assumed regarding the relationship between Bitcoin price and CPI announcements does not manifest in the data. This makes sense once we look at monthly BTC price change and wider drivers that have a larger effect.

Does Bitcoin go up or down with inflation?

In March 2022, the Fed began its rate hike cycle to combat inflation. Considering the monthly CPI reporting, January 2022 will be the starting point for comparison with the monthly price of Bitcoin for two reasons:

Increased interest rates had a depressing effect on the economy as borrowing became more expensive.

The law itself put inflation in the public spotlight as something that urgently needed to be addressed. Therefore, this will drive Bitcoin’s perception as an inflation hedge even more.

From this data, it is clear that the Fed’s hiking cycle, as a means of shrinking its balance sheet, has had a much greater (suppressive) effect on the BTC price than CPI figures. In fact, as CPI figures fall, the BTC price tends to rise. This is logical when these factors are taken into account:

Bitcoin is considered equally a speculative asset and a currency devaluation hedge. This perception is derived from its limited use (less than 2%) in the economy compared to the ubiquitous dollar.

Conversely, before the Fed’s hike cycle, when the money was “cheap”, Bitcoin was more likely to receive inflows as a riskier investment.

However, as the Fed continues to raise interest rates to combat inflation, this has been offset by Bitcoin’s increasingly limited supply. As of October 2024, 94.13% of Bitcoin supply is available at 0.84% ​​inflation rate, after the fourth halving event in April 2024.

More than just an inflation hedge, it is fair to say that Bitcoin is a central bank hedge. This was evident when Bitcoin surged 9.5% amid the US regional banking crisis.

Finally, the effect of CPI announcements on the price of Bitcoin is diluted compared to the underlying Bitcoin tokenomics. Most importantly, the inflation rate higher than BTC inflation is baked into the central bank cake. This is why, even if CPI numbers are on a downward trajectory, it does not detract from the fact that the dollar will continue to devalue while Bitcoin will have an even lower inflation rate in the future, after the fifth halving in March 2028.

In contrast, it is extremely unlikely that the federal government will curb its spending to such an extent that the Federal Reserve will stop monetizing the government’s rising debt. In the near term, it is more likely that the Fed’s interest rate cuts will reopen capital inflows to Bitcoin, regardless of lower CPI figures.

Why would inflation reports affect Bitcoin price?

Inflation is rather elusively understood as the rise in prices of goods and services, typically measured by government agencies. In the US, this would be the responsibility of the Bureau of Labor Statistics (BLS) via the Consumer Price Index (CPI).

However, digging beneath the surface, inflation is best understood as the effect of the central banking system. Specifically, when the Federal Reserve (“The Fed”) monetizes debt to cover government spending, the central bank increases its securities portfolio. The effect is the increase in the money supply, which manifests as inflation.

After decades of ever-increasing monetary plateaus to monetize debt, the most extreme one happened in 2020. The Federal Reserve’s balance sheet ballooned from $4.2 trillion in early 2020 to $7.2 trillion by mid-year. As a result, inflation (CPI) followed in the following year as a lagging effect, peaking at 9.1% (annualized) in June 2022, the highest since 1981.

In other words, the Federal Reserve is constantly devaluing the USD currency through constant monetary expansion. Even Fed Chairman Jerome Powell struggles to explain why the core inflation target (the USD value erosion rate) is 2% rather than some other percentage.

Consequently, this means the following:

Theoretically, this would translate to the price of Bitcoin going higher after CPI reports higher or lower if CPI reports show a drop. However, this was not the case as studied above.

Methodology

Figures for Consumer Price Index (CPI) were taken from the US Bureau of Labor Statistics. Other data was taken from the Federal Reserve Bank of St Louis, while Bitcoin (BTC) price and market cap data was taken from CoinGecko, from a January 2022 to October 2024 timeline. Price changes of BTC were then plotted against annualized monthly CPI figures.

If you use these insights, we would appreciate a link credit to this article on CoinGecko. A link credit allows us to continue to provide you with data-driven content that you may find useful.

Curious to find out more about our past research studies and statistics? Check out this one we did on crypto enforcement by regulators in the US.