US Inflation Data Sparks Market Reaction
The recent US Consumer Price Index (CPI) report for December 2025 showed a significant decrease in inflation, with a year-over-year rate of 2.7%, lower than the expected 3.1%. The Core CPI also decreased to 2.6%, the lowest level since April 2021. This drop was the largest in 9 months and has sparked hopes of a market reversal.
Key Insights
- The US CPI came in at 2.7% vs. 3.1% expected, while the US Core CPI came in at 2.6% vs. 3% expected.
- Bitcoin price spiked over $88,000 as US inflation fell to its lowest level since 2021.
- Investors liquidated more than $66 million worth of crypto shorts in just 60 minutes.
Market Reaction to US CPI Data
Markets initially cheered the bullish US CPI data, with Bitcoin and the broader crypto sector surging in response. However, this optimism was short-lived, as the markets continued to remain bearish, prolonging the decline that began in October. Analysts view this development as a potential turning point for the markets, especially since the rate hike by the Bank of Japan has been priced in.
Impact on Bitcoin and Crypto Market
The price of Bitcoin spiked slightly past $88,000 upon the release of the bullish CPI data. The rest of the crypto market quickly followed the surge, with Bitcoin jumping from about $85,000 to $88,500 within minutes. Above the $87,000 mark, the bulls became more aggressive, as seen in the size of the candles with long wicks above them.
Massive Short Positions Liquidated
The impact of the CPI data was not limited to Bitcoin and Wall Street stocks. The broader crypto market, especially those shorting, was hit hard. Within an hour of the news, short sellers liquidated about $67 million, while long traders lost only $4.61 million. This implied that the release favored upward potential, but the immediate rejection at $88K for Bitcoin price meant the move was not ripe yet.
The Future of the Markets
The US unemployment rate reached its highest level since September 2021, indicating that the economy is not doing well. This decline in inflation could lower the cost of borrowing, helping investors in their risk-on assets. However, some people doubt the accuracy of the data due to recent delays caused by the government shutdown, which could mean that costs like energy had not been fully accounted for.
Conclusion
In conclusion, the recent US CPI data has sparked a market reaction, with Bitcoin and the broader crypto sector surging in response. While the data has fueled hopes of a market reversal, the immediate rejection at $88K for Bitcoin price meant the move was not ripe yet. The future of the markets remains uncertain, with the possibility of a recession if inflation in services stays high. As the markets continue to remain bearish, investors will be watching closely to see if the upcoming jobs and growth numbers will confirm the disinflation trend.
