Volatility Expected in Bitcoin Later Today as US Headline Inflation Data Is Expected to Tick Higher

As a seasoned crypto investor with battle-tested nerves and a knapsack full of lessons learned from market cycles, I have grown accustomed to navigating the volatile seas of digital currencies. The impending U.S. inflation data announcement has me on high alert, for it could potentially stir up a tempest in the bitcoin market.

On Wednesday, the anticipated release of the U.S. inflation report could spark fluctuations in the value of Bitcoin (BTC), disrupting a previously tranquil 48-hour spell.

This week has been incredibly hectic for the world of cryptocurrencies. Following Donald Trump’s victory in the U.S presidential election on November 6th, the overall value of all cryptocurrencies surged from $2.2 trillion to $3 trillion, only to drop back down to around $2.8 trillion, as per TradingView.

I was thrilled when Bitcoin (BTC), the dominant player in the crypto world by market cap, nearly hit $90,000 on November 12, just as the U.S. stock exchanges were wrapping up for the day.

U.S. inflation data is not squashed

According to FXStreet’s forecast, the U.S. Consumer Price Index (CPI), scheduled for release at 8:30 ET, is predicted to indicate a 2.6% rise in the cost of living compared to last year in October. This marks an increase from the 2.4% rise observed in September, signifying the first such annual increase since March.

The issue of embedded inflation is not from headline but from core inflation, year-over-year. Early this year, we saw core come down from 3.9% to 3.2%. However, it turned higher in September to 3.3%, presenting a challenge to the Fed.

The concern of inflation not being slayed can be shown in the U.S. yields, which have only soared since the Federal Reserve started the rate-cutting cycle with a 50bps rate cut, followed by a further 25bps rate cut. Since the first rate cut on Sep. 16, the U.S. 10Y has jumped from 3.6% to 4.4%. With the U.S. 3-month treasury yield trading at 4.6%, which follows the effective federal funds rate, it’s suggesting that no more than 25bps of rate cuts will occur over the next three months, as the current target rate is 450 – 475.

Given the surge in predicted volatility and projected year-over-year rise in headline inflation, is there a possibility that Bitcoin’s price will experience a significant fluctuation later on today?

Implied volatility has risen

The anticipated volatility for options ending in a week has shot up from 40% to around 90%, mainly due to bitcoin surging towards $90,000, marking an over $20,000 increase since November 6. Implied volatility is the market’s prediction of future volatility, and it tends to fluctuate along with realized volatility and overall market sentiment. At-The-Money (ATM) IV provides a standardized perspective on these volatility predictions over time.

How has bitcoin fared on previous U.S. CPI releases?

Bitcoin’s performance in the first quarter was affected by increased volatility due to inflation data releases. It struggled as inflation continued to exceed its target, with rates nearly double. For instance, bitcoin experienced a drop of up to 7.5% on January 12 when the U.S. announced a higher-than-expected inflation rate for December.

As time went by and annual headline inflation decreased, this development turned out to be positive for Bitcoin, leading to a 6.7% price rise on July 15 as an illustration.

With a decrease in inflation rates, the market showed increased efficiency, resulting in a string of 0-1% price fluctuations for three consecutive periods. However, predictions suggest that inflation may surge once more.