The crypto market sprang back to life on Tuesday, shaking off the prior day’s sharp selloff as traders eagerly awaited the next batch of U.S. inflation data for clues on the market’s direction. Bitcoin (BTC) surged as high as $97,300, rebounding strongly from sub-$90K levels hit during Monday’s rout. The largest cryptocurrency’s recovery gained steam following reports that crypto-friendly Donald Trump is readying executive orders to support the industry when he retakes office next week.
While Bitcoin’s bounce was impressive, it was actually altcoins that stole the show, with Ripple’s XRP and meme coin Dogecoin (DOGE) leading the way. The altcoin-heavy CoinDesk 20 index outperformed Bitcoin with a solid 5% gain, as XRP and DOGE posted advances in the 6-7% range. The broader rally in digital assets was supported by a softer than expected U.S. Producer Price Index (PPI) reading for December, hinting that inflationary pressures may finally be cooling.
All Eyes on U.S. Inflation Data
Despite the strong start to the week, Bitcoin remains locked in a sideways consolidation pattern above the key $90,000 level as soaring bond yields and a resurgent U.S. dollar have shaken global markets in recent weeks. With the Federal Reserve seen as likely to keep interest rates higher for longer amid stubbornly elevated inflation readings, crypto traders are laser-focused on Wednesday’s Consumer Price Index (CPI) report for hints on the central bank’s policy path.
While hotter-than-expected PPI numbers could reignite concerns that the Fed will need to stay aggressive in tightening financial conditions, many analysts believe much of the “bad news” has already been priced in following the early 2025 plunge in equities and crypto. This suggests that barring a major upside inflation surprise, Bitcoin and the broader crypto market may have limited downside and could be poised for a relief rally if CPI comes in near consensus forecasts.
Trump Factor Looms Large
Beyond the near-term focus on inflation data, crypto market participants are also keeping a close eye on Donald Trump’s looming inauguration ceremony on Jan. 20. With anticipation building that the incoming president could unleash a slew of crypto-positive executive orders on his first day in office, some analysts see the risk of a “sell the news” event on the horizon.
While our monthly outlook favored selling the inauguration, we’d like to rephrase this strategy as selling BTC at the inauguration is considerably less appealing unless the coming six days offer a substantial resurfacing of momentum. The S&P 500 closed its post-election gap yesterday, and BTC reached 2-month lows.
– K33 Research
However, after the sharp drawdowns in equity and crypto markets to start the year, research boutique K33 believes the standard playbook of “buying the rumor, selling the news” may not apply this time around. With much of the froth already taken out of speculative assets, the downside risk around Trump’s big day may be more limited than originally thought.
Key Takeaways
- Bitcoin bounced strongly from Monday’s selloff, rallying back above $96,000
- Altcoins led by XRP and Dogecoin were the top performers, with CoinDesk 20 up 5%
- Traders keenly awaiting Wednesday’s U.S. CPI report for hints on Fed policy path
- Some analysts see limited downside in BTC with much “bad news” priced in already
- Trump inauguration also in focus as potential “sell the news” risk event next week
In conclusion, while the crypto market recovery is certainly encouraging for bulls, investors will need to navigate a tricky gauntlet of event risks in the coming days between the inflation data and Trump transition. HODLers may be best served to buckle up for some near-term volatility while keeping sight of the bigger picture. The ultimate arbiter of Bitcoin and crypto’s 2025 trajectory will most likely be the path of the U.S. economy and interest rates rather than any single catalyst.
