CPI release beats expectations, crypto market long and short positions both get wiped out in a liquidation feast

The US Consumer Price Index (CPI) annual growth rate was announced at 2.7%, lower than the market expectation of 3.1%, with core inflation dropping to its lowest level since early 2021. This data, surpassing expectations, clearly indicates a cooling of price pressures, shocking many market participants, and catching Federal Reserve officials off guard as well. Following the CPI release, the market immediately interpreted it as room for more dovish rate cuts, increasing the probability of a rate cut in January. As a result, US stocks and the cryptocurrency market surged significantly. Bitcoin temporarily soared to the $89,000 level, with the current price around $89.89K.

Data Far Below Expectations, Stocks and Gold Rise Together While Crypto Moves Independently

On the surface, the CPI release should be a bullish signal, but the crypto market’s rally only lasted two hours. After breaking through $88,000, Bitcoin quickly retreated, dropping to a low of $86,000, a significant decline. Ironically, US stocks did not fall correspondingly, and gold even broke through $4,300, clearly showing that the crypto market is moving independently. This is also the long-discussed “liquidation market” characteristic—rapid price surges and drops used to wipe out retail positions.

This pattern of rising then falling within just four hours caused a double whammy of long and short liquidations, totaling $210 million. Signs of market manipulation are quite evident. Investors using leverage to go long got liquidated, while those chasing high to short were squeezed out. This has become a common pattern in the recent crypto market.

Bank of Japan Rate Hike Imminent, Global Liquidity Faces Major Turning Point

A more critical variable comes from the upcoming interest rate decision by the Bank of Japan. Given that the BOJ has already signaled a hawkish stance, a rate hike decision is almost certain. However, the market’s focus is not on whether rates will rise but on whether the BOJ will hint at “initiating a rate hike cycle.” This wording is crucial; if a rate hike marks the start of a cycle, it will have profound impacts on global asset allocation. The profit margins from interest rate differentials will be continuously eroded, and global liquidity will face significant tightening.

Conversely, if the BOJ indicates that this rate hike might be a one-time adjustment, the market will see a “bearish event turning bullish.” Coupled with signs of cooling inflation in the US, the likelihood of a Santa Claus rally before the year’s end will greatly increase. This means the overall market trend will depend entirely on the BOJ’s wording and policy signals.