BTC

Author: Matt Crosby, Director of Research and Analysis, Bitcoin Magazine Pro; Translator: Shaw, Jinse Finance

Bitcoin saw a rare single-day surge last week, rising sharply from recent lows. The **triggered by** lower-than-expected US Consumer Price Index (CPI) data. Previously, the market had generally anticipated persistently high inflation; however, the data fell short of expectations, causing major asset markets to almost immediately reprice themselves.

This article will analyze: why official inflation data is likely to weaken; the complete transmission logic between inflation, market liquidity, and Bitcoin; and two major risk factors that could still interrupt this rebound.

Key Takeaways: Bitcoin rebounded sharply after CPI data fell short of expectations, easing market concerns about the Federal Reserve's continued tightening of monetary policy. The implied probability of interest rates remaining unchanged surged from less than 60% to around 85%, while the probability of a rate hike plummeted from over 35% to single digits. The real-time inflation indicator Truflation leads official CPI data by approximately 45 days, and current inflation estimates are close to 2%. The year-on-year growth rate of global broad money supply (M2) has most likely bottomed out. Two core risks: Escalating tensions in the Middle East push up oil prices, potentially triggering renewed inflation; the US dollar index reaches a critical turning point. Market Reaction Logic: If inflation data continues to rise, the Federal Reserve is inclined to raise interest rates to curb consumption, tightening market liquidity and putting downward pressure on risk assets; once inflation cools, the entire transmission chain will reverse. A clear historical pattern over the past decade is evident: **during periods of rapid CPI increases, Bitcoin generally weakens; during periods of declining inflation, the market environment is more favorable for Bitcoin's rise.** This is why lower-than-expected monthly inflation data triggers such dramatic market volatility. The market reaction is not simply about this particular data point, but rather about trading the subsequent interest rate and liquidity trends predicted by that data. Figure 1: CPI was lower than expected, and BTC rebounded accordingly. Before the data release, the implied probability of the Federal Reserve maintaining the current interest rate had fallen below 60%, while the probability of another 25 basis point rate hike had climbed to over 35%. Within moments of the data release, the probability of maintaining the current interest rate surged to around 85%, while the probability of a rate hike plummeted to single digits. Figure 2: The target range for the federal funds rate remains stable around 4%. Liquidity Transmission Chain Throughout Bitcoin's entire development history, the global M2 year-on-year growth rate, lagging by approximately 10 weeks, is one of the most stable leading indicators for predicting Bitcoin price trends. Figure 3: Global M2 is on an upward trend. Currently, the global broad money supply (M2) year-on-year growth rate is close to its bottom range from several months ago and has shown initial signs of recovery. Of particular note is the chronological pattern of the previous cycle: Bitcoin bottomed out on November 21, 2022, while global M2 growth only turned upwards approximately 55 days later. Before liquidity data confirmed a recovery, Bitcoin had already risen by 30% to 40%. The most tangible threat to the cooling inflation logic comes from the energy sector. Affected by the renewed escalation of the Middle East situation, crude oil prices have recently surged. Energy accounts for a very high weight in official inflation statistics; if international oil prices continue to rise, it will directly push up inflation data, completely reversing the current market repricing trend. In the forecast market, the probability of shipping in the region returning to normal this month has plummeted from over 60% to almost zero, demonstrating the rapid deterioration of the situation. Figure 4: The price of USOIL has rebounded from its recent lows, rising back to around $80. This is also the core source of downside risk. If geopolitical conflicts continue to escalate, their impact may replicate the effects of the FTX collapse in 2022: even if the market's spontaneous sell-off phase has ended, the final round of external shocks will still drive down the price. In this scenario, the confluence zone around $50,000 will become the downside target – where price, long-term holders' realization of costs, and the CVDD indicator converge. The US dollar index recently encountered resistance at a key level and has fallen back, currently fluctuating around the 100-week moving average. The negative correlation between the US dollar and Bitcoin is one of the most significant macroeconomic linkages in the crypto market, and the year-on-year trend of the US dollar is highly correlated with global broad money supply (M2). Figure 5: The US Dollar Index is facing resistance and is at a crossroads. If the US Dollar Index breaks strongly upwards, all risk-averse assets will come under pressure. Conversely, if the US Dollar continues its multi-year downward trend and effectively breaks below the 100-week moving average, Bitcoin will experience one of the strongest macroeconomic favorable environments in a long time. **Summary** Leading inflation indicators suggest that official inflation data still has room to decline; market interest rate expectations have completely reversed, no longer betting on further monetary tightening; global liquidity is showing signs of a turning point; the timing of Bitcoin's current bottoming process is highly similar to its previous cycle, where it bottomed out before macroeconomic indicators. **Oil price increases driving inflation and the dollar index breaking upwards both pose risks that could delay the start of a bull market; if geopolitical conflicts escalate sharply, Bitcoin prices may experience a final wave of selling, testing the $50,000 range. However, fundamentals, technicals, time cycles, and macroeconomic liquidity are now converging in a bullish resonance, a situation unprecedented in the past six months.