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 does it fear the most? It fears that "money loses value"!

1. What is "money has gone hairy"? It means "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 it mean? It means that prices are not rising as sharply as everyone was previously worried about. Oh wow, inflation pressure is lower!

2. With inflation pressures easing a bit, the big boss, the Federal Reserve, breathed a sigh of relief!
Why? Because the Federal Reserve's ultimate weapon against inflation is "interest rate hikes." What is an interest rate hike? Simply put, it means increasing the interest on savings, making borrowing much more expensive!
Do you want to deposit in a bank and get a steady interest rate of 5% or more (risk-free yield), and are you willing to risk your money in something like Bitcoin, which jumps up and down and can be cut in half? Don't want to! The interest rate of borrowing money to speculate is so high, the cost is scary, and it is not cost-effective, right? Therefore, as soon as the interest rate is raised, high-risk places such as the currency circle will be "short of water" (lack of money), and the price will be easy to fall.

3. CPI is lower than expected, the key point is here!
Inflation isn't as scary as expected, does the Federal Reserve really need to keep raising interest rates so aggressively? Probably not! The market has started to ponder: Hey, is the Federal Reserve close to stopping interest rate hikes? Is it even time to consider lowering rates in the future?

4. Once the expectation of interest rate cuts comes, 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 (it becomes easier and cheaper to borrow money).
As soon as the money is "cheap", everyone's mind will be lively:
"Ah, the interest from saving in the bank is not even enough to fill the gaps in my teeth! It's better to take a gamble in the crypto world, who knows, maybe a bicycle could turn 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.
There is a feeling that there is more money in the market, and water (liquidity) is coming! With all this extra money, you have to find a place to go. A high-risk but potentially high-return place like the currency circle has become a "depression" to attract money.

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

Summarize this story of the flow of "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 gate of the reservoir (market), causing the water flow (money) to narrow. The "high dry land" of the crypto world is the first to suffer from the drought, and the crops (coin prices) wither.

The CPI is lower than expected, just like the report says that "the threat of downstream flooding is smaller", and everyone wonders: is the floodgate about to loosen a little? Or even open the floodgates to release water in the future? Thinking that there may be a lot of water (cheap money) coming in the future, the crops (currency price) of this "highland dry field" in the currency circle are not optimistic in advance, looking forward to being able to drink enough water and grow tall?

But! Classmates, take note! 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 word from a big shot can all cause it to go haywire. CPI is just one of the important factors.
"Below expectations" is super critical! If the CPI is still very high, just a little lower than last month, but higher than everyone guessed, that's still "bad news" and may continue to fall!
What is being speculated is "expectation"! The market plays with "early guesses"; by the time the rate cuts actually happen, the effects may have already been overdrawn.

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