With the ongoing expansion of the digital currency, it has become increasingly intertwined with the global financial system.
Furthermore, there is currently a strong correlation between the cryptocurrency markets and the U.S. financial markets, where any news or updates can have either positive or negative repercussions.
Prior to the release of inflation figures, investors turned their attention to stablecoins, particularly USDC. Consequently, there was a sharp increase in USDC inflow to exchanges, with the netflow reaching 698 million before the Consumer Price Index (CPI) data was made public, based on findings from CryptoQuant.
Following the release of the CPI data later that day, the USDC inflow soared to 1.09 billion, marking a positive value for the first time in the past week.
When the netflow shows a positive trend, it indicates an increase in the liquidity of stablecoins on exchanges.
Significance of USDC Netflow
The rising USDC netflow holds importance for several reasons. The surge in liquidity inflow suggests that traders are gearing up to purchase digital assets.
Therefore, stablecoins serve as a ready resource for traders seeking to establish positions.
Moreover, an increase in USDC inflow signals that institutions or major investors are preparing to enter the market and amass Bitcoin or other promising tokens.
The accumulation of digital assets by institutional players and large investors using USDC is evident in the escalating Large Holders Netflow and Exchange Netflow Ratio, which surged from 3.4% to 50% within a span of four days.
Such inflows indicate active participation of major investors and institutions in the market to accumulate digital assets.
Higher U.S. CPI Figures Surpass Market Expectations
Despite the optimistic outlook of crypto investors leading to increased USDC demand, the result was contrary to expectations.
Inflation in the United States, as reflected by the CPI, surged by 3.0% in January compared to the same period in 2024. This exceeded the growth in December, as per data from the U.S. Bureau of Labor Statistics.
The upsurge surpassed most forecasts, with the CPI climbing by 0.5% monthly, in contrast to December’s 0.4% increment. Core CPI showed a year-on-year increase of 3.3%, surpassing the 3.1% projection made by many analysts.
Implications for Cryptocurrency
The release of CPI data had an immediate impact on the cryptocurrency markets. Bitcoin initially dipped to $94,000, then rebounded to $98,151, and later retreated to $96,000. This fluctuation indicated that the CPI data had minimal positive influence, leading to sideways trading in the crypto market.
Furthermore, the entire cryptocurrency market mirrored Bitcoin’s behavior, with the market capitalization rising to $3.25 trillion before falling to $3.20 trillion.
Despite the surge in USDC inflow that had investors hopeful, the disappointing CPI data swiftly shifted market sentiment from bullish to bearish.