What’s Causing BTC, XRP and ETH to Pump? Inflation Cools as China Injects Liquidity

2024 ended with a bang for the crypto market, and the community entered the new year brimming with optimism.

The promise of government adoption, regulatory clarity and fast-growing projects had crypto primed for a 2025 takeover.

But something stood in the way – inflation.

Investors kicked off the year cautiously on the back of sticky inflation and concerns the US Federal Reserve would cut rates even less than twice in 2025. 

However, the latest set of inflation data hit the news cycle overnight – and it looks like the market’s fears may have been overstated.

Related: Bitwise’s Matt Hougan: Companies Fuelling Overlooked Megatrend Set to Sway Market in 2025

December Inflation Aligning With Expectations, Quelling Fears of Interest Rate Hikes

The Core Consumer Price Index (CPI) increased 0.2% in December – which was more-or-less in line with expectations.

Over the past 12 months, Core CPI fell to 3.2%, coming in under the 3.3% predicted by the Feds.

Essentially, the market had prepared for bearish figures, with some even speculating that sticky inflation would cause the Feds to halt interest rate cuts entirely.

But with Core CPI and Primary Producers Index (PPI) numbers outperforming (or aligning with) expectations, inflation is sitting well within the Feds’ projected ranges. 

While we are still waiting for the fiscal agency’s preferred inflation metric, Primary Consumer Expenditure (PCE), it would be a surprise for this number to fall out of line with forecasts.

So what does all of this mean?

Despite the market’s growing concerns throughout early January, inflation is moving as expected and the Feds can continue with their goal of two rate cuts throughout 2025 – a bullish outcome for the crypto sphere.

If inflation remains within projections, the US cash rate will fall to between 3.1%-4.4% by the end of the year. And as we know, lower interest rates usually correlate with a strong crypto market.

XRP Explodes as Crypto Market Moves Into Bullish Territory

The tentative market had priced in higher-than-expected inflation results, causing Bitcoin to plummet below US $90k (AU $144k).

But once the macroeconomic situation was revealed to be softer than anticipated, investors quickly got to work.

Bitcoin pumped back over US $100k (AU $160k), while ETH (6.5%), SOL (9%) and DOGE (7.7%) enjoyed hefty 24h gains.

However, the big winner of the day was XRP. The long-standing crypto project brushed aside years of mediocrity moving close to its all-time high, surging nearly 18% in a matter of hours. 

The bull run comes on the back of speculation the Securities and Exchange Commission (SEC) will drop its case against XRP in the coming weeks, on top of the bullish market sentiment.

China Celebrates Holiday Season With $100b Cash Injection

Meanwhile, the Chinese economy is having the opposite issue – deflation. 

Liquidity among banks and institutions was becoming rather stretched, and fears for the yuan’s medium-term future were rife among analysts.

However, the Government has acted decisively.

The People’s Bank of China pumped a whopping US $131 billion (AU $210 billion) of cash into the system, in the form of seven-day repurchase agreements.

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Essentially, this allows companies to sell securities to banks for cash, on the promise they’ll re-purchase them after a week.

The injection of liquidity is the second-highest on record, signaling a major step from the Chinese Government to ease the nation’s financial struggles as the holiday season begins.

Bitcoin has a strong historic correlation with global liquidity – so the more money floating about, the better for the crypto market.