The continued expansion of the cryptocurrency market has led to greater interconnectedness with the global economy.
Furthermore, there is currently a strong correlation between the crypto markets and the U.S. market, where any news or development can have either positive or negative repercussions.
Prior to the release of inflation data, investors turned their attention to stablecoins, particularly USDC. Consequently, there was a significant uptick in USDC inflow to exchanges, with the netflow reaching 698 million before the announcement of the Consumer Price Index (CPI) data, according to CryptoQuant.
Following the release of the CPI data later in the day, the USDC inflow had surged to 1.09 billion, marking a positive value for the first time in the past week.
A positive netflow indicates an increase in stablecoin liquidity on exchanges.
Significance of USDC Netflow
The increasing USDC netflow holds importance for several reasons. The growing liquidity inflow suggests that traders are preparing to invest in crypto assets.
Thus, stablecoins serve as a reserve for traders looking to establish positions in the market.
Moreover, a spike in USDC inflow indicates that institutions or large investors are gearing up to enter the market and accumulate Bitcoin or other promising assets.
The accumulation of crypto assets by whales and institutions using USDC is reflected in the escalating Large Holders Netflow and Exchange Netflow Ratio, soaring from 3.4% to 50% in just four days.
This influx suggests active participation by whales and institutions in the market to accumulate crypto assets.
U.S. CPI Exceeds Market Expectations
While crypto investors were anticipating favorable CPI data due to the rising demand for USDC, the actual outcome differed.
In January, inflation in the U.S., tracked through the CPI, surged by 3.0% compared to the same period in 2024. This increase surpassed the growth seen in December, as per data from the U.S. Bureau of Labor Statistics.
The uptick was higher than most predictions, with the CPI rising by 0.5% monthly, in contrast to December’s 0.4% climb. Core CPI witnessed a 3.3% rise from a year ago, surpassing the 3.1% forecasted by several analysts.
Implications for the Crypto Market
The release of the CPI data had an immediate impact on the crypto markets. Bitcoin initially dropped to $94k, then recovered to $98,151 before retracing to $96k. This volatility suggests that the CPI data had minimal positive effect as the crypto market continued to trade sideways.
Furthermore, the entire crypto market mirrored the movement of BTC. The market cap rose to $3.25 trillion, then dipped to $3.20 trillion.
Despite the surge in USDC inflow that had investors optimistic, the disappointing CPI data abruptly shifted sentiments from bullish to bearish.