Key Points
- The Bitcoin Coinbase Premium Index, an indicator of Bitcoin retail demand in the US, has dropped to a six-month low.
- This decrease comes before the release of the US Consumer Price Index (CPI), suggesting investor caution.
The Bitcoin Coinbase Premium Index, which measures Bitcoin retail demand in the US, has hit its lowest point in six months. This decrease comes just before the release of the US Consumer Price Index (CPI), indicating a sense of caution among investors.
Coinbase Premium Index Turns Negative
CoinGlass data shows that the Bitcoin Coinbase Premium turned negative on Tuesday, reaching -0.0254%. On the same day, the price of Bitcoin briefly fell to $95,902. This has sparked investor concern as it’s the first time the index has gone negative since its crash on August 3.
The Coinbase Premium Index measures the percentage difference between the price of Bitcoin on the American exchange and other platforms like Binance. This index is typically used to gauge the demand of US institutional investors for Bitcoin.
A positive index suggests that institutions are actively acquiring Bitcoin, while a negative value indicates selling pressure. Therefore, the recent drop in the Coinbase Premium is seen as a sign that US Bitcoin institutional investors are becoming cautious ahead of the upcoming CPI data.
Bitcoin’s Price and the Impact of CPI Data
Meanwhile, Bitcoin investors outside the US have driven the coin’s recovery to $96,000 from overnight lows near $94,900. At the time of writing, Bitcoin was trading at $96,061, down 2.03% in 24 hours.
Historically, a positive Coinbase Premium has been followed by bullish Bitcoin prices, indicating strong leadership from US investors. For example, Bitcoin reached an all-time high above $70,000 when the Coinbase Premium rose to two-month highs in early November.
The CPI is a crucial indicator of inflation and changes in purchasing trends. Higher CPI indicates increased inflation, while a falling CPI signifies lower inflation. The December 2024 CPI report showed that inflation rose to 2.9% Year-over-Year (YoY), while the core rate fell to 3.2%. It’s predicted that Wednesday’s report will show a CPI of 2.85%, a modest 0.5% drop from December’s figure. The market also forecasts that the core rate will fall to 3.13%.
A softer-than-expected CPI could strengthen hopes for the Federal Reserve (Fed) to ease up on interest rate cuts. This situation might weaken the US dollar, potentially increasing demand for risky assets like Bitcoin. Conversely, a hotter-than-expected outcome could strengthen the US dollar, reducing demand for Bitcoin.
It’s important to note that forward-looking inflation indicators suggest higher future inflation. This expectation has dampened hopes for sustained aggressive rate cuts by the Fed. As a result, it complicates the Fed’s path to lowering rates and suggests that any CPI-induced rally in Bitcoin might be short-lived.
