CryptoFusion

Today, Bitcoin's value has surged, surpassing $26,300, despite a surprising uptick in inflation as indicated by the September 13th Consumer Price Index (CPI) report. Following the report's release, Bitcoin swiftly reclaimed the critical $26,000 threshold, instilling confidence in traders and analysts who deem this level crucial.

Bitcoin's price graph, as seen on TradingView  

Now, let's delve into the factors driving the current increase in Bitcoin's price.

Despite a general increase in inflation, the annual core CPI experiences a decline

The CPI report has triggered an upswing in Bitcoin's price and equity markets. According to the report, overall CPI experienced a 3.7% rise in August, surpassing the 3.2% from July. The market appears to view the surge in energy prices, notably gasoline, which recorded a 10.6% monthly increase, as temporary. Although gasoline costs are the second-largest household expense, they have decreased on an annual basis.

The annual core CPI, a measure that excludes food and energy items, displayed more optimistic figures. In August, the annual core CPI stood at 4.3%, lower than the previous month's 4.7%. Nevertheless, certain outliers may be bolstering overall market confidence. The United States Bureau of Labor Statistics highlighted a significant increase in the shelter index, which rose by 7.3% over the past year, accounting for more than 70% of the total increase in all items excluding food and energy.

Yearly CPI data. Sourced from the Bureau of Labor Statistics (BLS)  

The potential that inflation might approach the Federal Reserve's 2% target has raised hopes that interest rate hikes will be put on hold, a development that investors believe benefits high-risk assets like Bitcoin. According to Quinn Thompson, Head of Growth and Capital Markets at Maple:

"In this challenging environment for long-duration tech assets, it's not surprising that the digital asset market has faced difficulties recently. With high interest rates, many investors are opting for high-yield savings accounts and money-market funds. Additionally, the strength seen in various commodities underscores the ongoing economic robustness and the persistence of inflation. Until this changes, the availability of capital for investment in crypto will remain relatively limited."

Increased institutional attention toward Bitcoin enhances market confidence

Institutional interest in Bitcoin is bolstering market sentiment. Following U.S. Court of Appeals Circuit Judge Neomi Rao's decision in favor of the Grayscale Bitcoin Trust against the U.S. Securities and Exchange Commission (SEC) on August 29, numerous major institutions have applied for exchange-traded funds (ETFs). Moreover, companies such as BlackRock and Fidelity Investments are displaying a growing interest in Bitcoin. While both institutions had their BTC spot ETF approvals delayed on September 2, the $1.5 trillion asset manager Franklin Templeton filed for a spot Bitcoin ETF on September 12.

To date, the SEC has declined to approve a spot Bitcoin ETF despite multiple applicants, including BlackRock, Fidelity, Cathie Wood's ARK Invest, and 21Shares, which has applied for approval three times. BlackRock, the world's largest asset manager with over $8.5 trillion in assets under management, will use Coinbase to custody the BTC in the trust, as per the SEC filing.

The SEC is set to decide on the application by October 16.

The amount of Bitcoin held on exchanges continues to decrease

In parallel with Bitcoin's price gains, the supply of BTC on exchanges has consistently fallen below the monthly peak observed on September 4, with over 40,000 Bitcoin leaving exchanges. 

Bitcoin holdings on exchanges. Sourced from CoinGlass  

This exodus of coins from crypto exchanges is generally seen as a bullish sign, as traders often withdraw their BTC when intending to hold it in self-custody for the long term.

Notably, on-chain data reveals that despite the prolonged bear market, a significant number of Bitcoin investors are positioning themselves for a potential BTC price rally, with the number of wallets holding 0.1 BTC reaching an all-time high of 12 million on September 12.

While Bitcoin's price is displaying short-term bullish momentum following the CPI report and the Franklin Templeton ETF application, the Bitcoin Fear and Greed Index indicates that the market still harbors fear, with a nine-point decrease compared to the previous month.

The Fear and Greed Index for Bitcoin. Sourced from an alternative provider