Bitcoin Rallies As U.S. Inflation Hits 7%

Bitcoin and other leading cryptocurrencies rallied after U.S. reported that Inflation Rate grew by 7% year-over-year in December, in line with analyst estimates.

Bitcoin Gains Ground As Demand for Riskier Assets Grows

On a month-over-month basis, U.S. Inflation Rate increased by 0.5% in December compared to analyst consensus of 0.4%. Core Inflation Rate grew by 5.5% compared to analyst consensus of 5.4%.

Traders focused on the headline inflation number and rushed to buy riskier assets, including cryptocurrencies. Ethereum, Binance Coin, Solana, Cardano, XRP, Terra are all moving higher as traders look ready to buy all leading coins.

While the inflation number itself is scary, traders feared that Inflation Rate will exceed analyst expectations, and the Fed will be forced to act aggressively by raising the interest rate on each meating in 2022. In addition, the Fed has the option to reduce the size of its balance sheet, pushing Treasury yields higher, which will be bearish for all riskier assets, including cryptocurrencies.

It is important to note that the market is not treating any cryptocurrency as an inflation hedge. Instead, Bitcoin and other cryptocurrencies are viewed as risky assets, which benefit from lower rates and struggle when the Fed tightens its policy.

As inflation met analyst estimates, traders bet that Fed will not make additional moves to tighten its policy, and buy riskier assets like cryptocurrencies.

Bitcoin Tries To Settle Above the Resistance at $44,000

Bitcoin settled above the resistance level at $42,600 and is testing the next resistance at $44,000. In case this test is successful, Bitcoin will move towards the 20 EMA which is located near $45,000.

A move above the 20 EMA will push Bitcoin towards the resistance at $45,500. If Bitcoin manages to settle above this level, it will head towards the resistance near $47,000.

On the support side, the previous resistance at $42,600 will serve as the first support level for Bitcoin. If Bitcoin declines below $42,600, it will head towards the support level at $41,000. A move below this level will open the way to the test of the psychologically important support level at $40,000.