Inflation Is Cooling Off; Will the Fed Follow Suit?

By Alex Benfield

The November Consumer Price Index data was published yesterday … and the numbers are looking promising.

Inflation came in at 7.1% — 0.2% lower than the expected 7.3% and a steady decrease from October's 7.7% inflation.

Hopefully, these lower inflation numbers can convince the Federal Reserve to take its foot off the gas and slow down the hikes, as the Fed could interpret this data to mean its rate hikes are starting to take effect.

This month's Federal Open Market Committee meeting minutes should be released sometime this afternoon, so we will find out what the Fed will decide to do soon.

For weeks, the crypto market has been searching for a catalyst to push prices in one direction or another, since volatility has been nearly nonexistent so far this month.

Yesterday's CPI announcement did move the needle a bit for crypto prices, as most market leaders finished the day up about 2%–5%.

That's not much, but it's certainly a step in the right direction. We're getting closer to climbing out of the suppressed trading ranges our market leaders have been in since the FTX collapse.

The top crypto by market cap, Bitcoin (BTC, Tech/Adoption Grade "A-"), has been climbing slowly for weeks now, ever since the low on Nov. 21.

And in just the past 48 hours, BTChas made a noticeable jump, despite the ongoing Sam Bankman-Fried arrest and crypto trials.

The next range ahead for Bitcoin is the previous range of $18,500–$21,000, where BTC had been trading throughout September and October.

We will likely know if Bitcoin will make the push to that trading range by the end of the day.

Here's BTC in U.S. dollar terms via Coinbase (COIN):

Click here to view full-sized image.

Ethereum (ETH, Tech/Adoption Grade "B") is up about 5% over the past two days and is pushing the limits of its current trading range at the $1,350 level.

Unlike BTC, ETH is already back to its September and October trading range and is currently trying to break out back to the level it was at right before the FTX drop.

We'll be watching to see if ETH can flip $1,350 into support over the next few days.

Here's ETH in U.S. dollar terms via Coinbase:

Click here to view full-sized image.

Today's Federal Open Market Committee meeting minutes represent the crypto market's best chances of a late 2022 rally, and the language used in those minutes will be incredibly meaningful for the market direction in the first quarter of 2023.

Should the market process the FOMC meeting minutes in a favorable way, we could see our market leaders climb back into the pre-FTX collapse trading ranges of late October or early November.

What's Next

Much of this year's crypto sell-off has been due to rising interest rates and increased inflation. If those two narratives start to change as we head into 2023, one would expect more favorable price action.

However, not all of the market sell-off can be attributed to macroeconomic conditions and a hawkish Fed.

2022 also saw a mass purge of bad actors and leverage from the crypto sphere with three unprecedented black swan events.

This started with the collapse of Terra (LUNA, Unrated), then segued into the downfall of Three Arrows Capital. Most recently, the news around FTX and Sam Bankman-Fried shows this contagion isn't over quite yet.

However, despite the lost money and bankruptcies, the crypto industry is emerging much healthier after these events. With these bad actors out of the game, they can't manipulate the market behind the scenes anymore.

At the end of the day, crypto needs these moments of fear and panic in the bear markets to balance out the times of euphoria and joy like we see in the bull markets. Additionally, overleveraged companies and traders are always washed out during bear markets, and after the leverage and bad actors work their way out of the system, this industry is always ready to rebuild even stronger.

I, for one, will be waiting patiently and eagerly for the next iteration of the crypto industry.

Best,

Alex