Have you ever wondered why Crypto/Forex traders long for certain financial News?
Why traders halt trading until a particular News has been broadcasted?
The relationship between CPI and the crypto market?
If you had, just like I did some years ago, this article will answer all your questions.
The above questions could seem easy to answer even when you don’t know the actual reasons behind your answer.
You could just say:
“Since traders wait for a particular News before resuming trading, it means that the News has the tendency to affect the crypto market, and also affect their trading decisions.”
Correct! But in what way? And how can you use financial News to increase your profitability in trading?
No matter how difficult these questions might look, we will be answering all of them here.
So, let’s move on.
The Crypto market
The crypto market is a decentralized digital currency market.
This huge market is decentralized in the sense that it doesn’t have a centralized server, instead it operates through a system of peer-to-peer transaction checks.
A peer-to-peer system only involves the buyer and the seller within a transaction, no other party is involved.
While the crypto market is decentralized, many internal and external factors still affect the market.
The macroeconomic condition of the world at large affects the financial systems of the world, and the crypto market is not exempted.
Currently, the global cryptocurrency market capitalization is $853 Billion, according to coinmarketcap.
What is Consumer Price Index (CPI)
CPI is one of the inflation indicators that concerns everyone in the whole world.
Consumer Price Index(CPI) measures the level of inflation in any economy.
This is because, the standard of living of residents is greatly affected by inflation.
As a consumer, you consume lots of goods on a daily basis. The price of these basket of goods will not remain the same forever.
As time goes on, the prices of goods will increase, the average change over time of these prices paid for a basket of goods will be measured to give the CPI.
So, we can say that CPI is a measure of the percentage change in the prices of a basket of goods and services purchased by consumers.
Since the prices of good and services are always changing, CPI too varies from month to month.
What is CPI used to calculate?
As said earlier, we can use CPI to calculate inflation as it is one of the most used inflation indicator.
Since CPI is a concern to everyone, understanding how it affects you matter a lot.
Depending on who you are, CPI can be used differently.
As a consumer
As someone who consumes goods and services, you can use the CPI to manage your budget and expenditures.
Since the CPI increases relatively with inflation, you have to learn how to manage money properly.
For US citizens, the CPI affects their investment enthusiasm. When the CPI is high, they tend to invest less than when it’s normal.
Also, if the CPI is too high, you can be fired at work, which means you have to halt investments and develop proper money management skills.
Federal Reserves
The federal reserve is a powerful financial institution in the United state.
The giant institution use CPI to manage and calibrate monetary policies.
The increase or decrease in the CPI leads to a new decision geared towards a better monetary policy for the benefits of citizens.
So, it lies on the institution to induce better monetary policies in managing inflation in the economy.
Financial market traders
CPI affects financial markets(Forex, Crypto, Stock, etc.) positively or negatively.
As a financial market trader, your trading decisions is highly influenced by CPI.
So, financial traders use the CPI to calculate inflation and to make better trading decisions.
Companies/Firms
Companies are also affected by inflation. When the CPI is high, companies might be forced to layoff staffs, to cope with high operational costs.
Companies will have to manage their budgets, make better economic decisions to avoid bankruptcy.
Also, when the CPI is favorable, companies seem to expand their services to other geographical locations, which gives rise to increase in staff and better economy.
How is CPI calculated?
The calculation of the CPI doesn’t have a clear and understandable formulae or calculation, but the principle is self explanatory.
Since we know that the CPI is greatly dependent on the prices of consumer goods, it is easy to calculate or predict by sampling those goods over time.
According to investopedia, the Bureau of Labor Statistics samples 94,000 goods/services prices monthly to calculate the CPI.
The CPI is calculated by considering the price index for each product or service in proportion to the variation of recent consumer expenses.
When the prices of goods are services increase, the CPI will also increase.
When to expect CPI report/broadcast
The CPI is important to everyone, whether a trader or not.
As a consumer alone, it will help you manage your resources properly.
Sometimes, you have to reduce your spending to cope with inflation if you understand the CPI.
Now you understand the significance of the CPI, you need to know when to expect it as to when to make your financial decisions.
According to the U.S. Bureau of Labor Statistics, the CPI is scheduled to be released in:
| Reference Month | Release Date | Release Time |
|---|---|---|
| October 2022 | Nov. 10, 2022 | 08:30 AM |
| November 2022 | Dec. 13, 2022 | 08:30 AM |
| December 2022 | Jan. 12, 2023 | 08:30 AM |
| January 2023 | Feb. 14, 2023 | 08:30 AM |
| February 2023 | Mar. 14, 2023 | 08:30 AM |
| March 2023 | Apr. 12, 2023 | 08:30 AM |
| April 2023 | May 10, 2023 | 08:30 AM |
| May 2023 | Jun. 13, 2023 | 08:30 AM |
| June 2023 | Jul. 12, 2023 | 08:30 AM |
| July 2023 | Aug. 10, 2023 | 08:30 AM |
| August 2023 | Sep. 13, 2023 | 08:30 AM |
| September 2023 | Oct. 12, 2023 | 08:30 AM |
| October 2023 | Nov. 14, 2023 | 08:30 AM |
| November 2023 | Dec. 12, 2023 | 08:30 AM |
CPI and the Crypto market
Now, to the question of the day, “how does the CPI affect the crypto market?”
Volatility is a very important factor in the crypto market, especially for traders.
Whenever the CPI is announced, the crypto market becomes very volatile.
Thus, the CPI affects the crypto market positively or negatively;
Positive effect of the CPI on the Crypto market
A reduced CPI affects the Crypto market positively.
When the CPI is low, investors and institutions can have funds to invest, since the economy is favorable.
Money will be pumped into the crypto market when inflation is low than when it’s high.
At that time, consumers will have better investing power since the prices of goods and services are reduced with a better standard of living.
As a trader, the crypto market becomes bullish when CPI value is low, and traders will take advantage of the bullish volatility by leveraging on it.
Negative effect of the CPI on the Crypto market
In this phase, the reverse is the case.
The CPI becomes increased and inflations follows suit.
Standard of living becomes high, companies start laying off staffs, consumers starts managing their resources, and crypto traders starts selling off assets to manage the harsh economic conditions.
At that time, consumers will cut their expenses and investment chances and companies will cut operational costs.
As a trader, the crypto market becomes bearish when CPI value is high, and traders will stay clear of the market or short derivatives.
Also read: How to make money with Blockchain technology.
Conclusion
The crypto market is broad and only one factor cannot guarantee market movement.
It will advisable to conduct various market research to look for confluence before taking any market decision.
However, the CPI remains a major indicator of inflation and it continues to be longed for by any financial market participant at large.