Students! Let's talk in the vernacular today, why as soon as the CPI data is announced in the United States, the group of people in the currency circle are like the New Year, shouting! It seems that Bitcoin and Ethereum are about to take off again? There is actually a very simple logical chain in this, listen to me slowly dismantle it.

Imagine this: The Federal Reserve (the central bank of the United States) is like a big steward managing "money." What is it most afraid of? It's most afraid of "money losing value!"

1. What does "money has become fuzzy" mean? It means that "inflation" is too high!
CPI (Consumer Price Index) is a thermometer that measures how fast prices are rising. If CPI is lower than expected, what does that mean? It means that prices are not rising as rapidly as everyone was previously worried about. Oh ho, inflation pressure is less!

2. With inflation pressure easing slightly, the big boss Federal Reserve has breathed a sigh of relief!
Why? Because the Federal Reserve's ultimate weapon against inflation is "interest rate hikes." What are interest rate hikes? Simply put, it means making the interest on savings higher and the cost of borrowing extremely expensive!
Just think about it, if you can safely earn 5% or even higher interest (risk-free return) by saving in a bank, would you still be willing to throw your money into Bitcoin, which is so volatile and could be cut in half? Probably not! The interest on borrowing money to trade coins is so high, the costs are terrifying, so it's even less worthwhile, right? Therefore, when interest rates rise, the crypto world, being such a high-risk area, becomes "short of water" (short of money), and prices are likely to fall.

3. CPI is lower than expected, the key point is coming!
Inflation isn't as scary as expected, does the Federal Reserve still need to raise interest rates so aggressively? Probably not! The market is starting to ponder: Hey, is the Federal Reserve close to stopping interest rate hikes? Could it even be time to lower rates in the future?

4. Once the expectation of interest rate cuts arises, money becomes "cheap"!
What is interest rate reduction? It means that the interest on savings becomes lower (saving in the bank becomes meaningless), and the cost of borrowing becomes lower (borrowing money becomes easier and cheaper).
When money is "cheap," everyone's mind becomes active:
"Ah, the interest from saving in the bank is not even enough to fill the gaps in my teeth! Why not take a gamble in the crypto world? What if a bicycle turns into a motorcycle?" — This is called an increase in risk appetite!
"Now that the interest rates for borrowing money are low, using some leverage (borrowing money) to trade coins might earn more?" - This is called a decrease in financing costs.
The market feels like there is more money, liquidity is coming! This extra money has to find a place to go. Places like the crypto world, which are high-risk but potentially high-return, have become a "lowland" that attracts money.

5. Water (money) flows to the "lowlands" (crypto world), and the result?
As more people buy, the demand increases, and the price naturally rises! This is why a lower than expected CPI is seen as a positive for the crypto world.

Summarize the flow story of this "money":

The CPI data is low→ the inflationary pressure is smaller→ the Fed doesn't have to (or doesn't have to be so ruthless) to raise interest rates → everyone expects interest rates to be cut in the future/money is getting cheaper→ the bank is bored/it's easier to borrow money → money is starting to run to high-risk and high-return places (such as the currency circle→ there are more people buying coins/more money→ the price of the currency may rise!
For example:

The Federal Reserve's interest rate hike is like tightening the dam (market) of a reservoir, causing the water flow (money) to narrow. The "high and dry land" of the crypto world is the first to run out of water, and the crops (coin prices) wither.

If the CPI is lower than expected, it's like the report says "the threat of downstream flooding has decreased", and everyone starts to wonder: is the dam going to be released a bit soon? Could there be a flood (cheap money) coming in the future? Thinking about the possibility of a big flood, will the crops (coin prices) in this "highland dry field" of the crypto world be anticipated in advance, hoping to drink plenty of water and grow tall?

But! Students, knock on the blackboard! The key point is coming:

This is the "usual" logic, not 100% guaranteed! The crypto world itself is like a roller coaster, emotions, policies, hackers, and a single word from a big shot can make it go crazy. CPI is just one of the important factors.
"Below expectations" is super crucial! If the CPI is still very high, just a little lower than last month, but higher than what everyone guessed, then it's still "bad news" and may continue to drop!
What is being speculated is "expectation"! The market is playing "advance guessing"; by the time the interest rate is actually lowered, the effects may have already been exhausted in advance.

So, next time you see the news saying "US CPI is lower than expected" and the crypto world cheers, you'll understand: oh! It turns out everyone is betting that more and cheaper money will come in to buy coins in the future! Got it?