• Bitcoin fell to $48,800 after the Consumer Price Index for January showed 3.1% annual inflation higher than analysts forecasted.
  • CME FedWatch Tool shows that expectations of a rate reduction in May have fallen from 52% to 34%.
  • Craig Erlam, OANDA, said that “nasty inflation” was damaging in the short term, but it won’t “dampen mood” on crypto markets.

Bitcoin (BTC) fell below $49,000 Tuesday after a hotter-than-anticipated U.S. inflation reading weighed on interest-rate cut expectations.

The largest crypto, by market capitalization, fell about 2% from a little above $50,000 earlier in day to $48,700. Meanwhile the CoinDesk 20 index ( CD20 ) dropped 2.4%.

The day ended with a few cryptocurrencies recovering some of their losses. BTC recovered to $49,000, but the majority of CD20 members were still down between 2% and 3%. SOL Price Index and Live Chart – CoinDesk”>(SOL) held up better, gaining over 1% during the same time, while BTC was down 1.5%.

U.S.-listed cryptocurrency-focused stocks tanked when markets opened, but has recovered part of their losses later in the afternoon. MicroStrategy (MicroStrategy) and Coinbase (COIN), both listed in the United States, were down about 3% on Monday’s close, while Marathon (MARA) (a large BTC miner) and Riot Platforms(RIOT), also listed in the U.S., fell 5% and 2.2% respectively.

Prices dropped after the Consumer Price Index report for January showed a 3.1% annual inflation rate, higher than analysts’ expectations of 2.9%. According to CME FedWatch Tool, market participants see only 34% of the Federal Reserve reducing interest rates in may, down from the 52% they saw a day earlier.

Traditional markets were also affected by the lower likelihood of rate cuts in the near future. The yield on the 10-year U.S. Treasury Bond increased by 12 basis points while the S&P500 equity index and the tech-heavy Nasdaq composite Index fell as much as 2%.

In a note on Tuesday, Craig Erlam said, “This isn’t the inflation report the Federal Reserve was hoping to see, and the markets have responded accordingly.”

He noted that traders are now pricing in only three rate reductions (75 basis points) for 2024. This is a significant decrease from 175 base points last month. However, it suggests that inflation fears may have become overly pessimistic.

Erlam stated that “markets appeared to have been positioned too positively last month. I wonder if the pendulum is now too far in reverse direction.” “We’ve seen significant progress in inflation, and I expect that we will see even more over the next few months.”

Erlam said that the “nasty inflation” reading came just as bitcoin was breaking above $50,000 for the first time in December 2021.

He added that, “while damaging in the short term, I do not think it will dampen too much the mood in crypto space,”

UPDATE (Feb. 13, 19:33 UTC): Updates price action. Adds analyst comments.

Sheldon Reback is the editor.