The core PCE (Personal Consumption Expenditures Price Index) is an important indicator used by the Federal Reserve to measure inflation. Its changes influence monetary policy expectations and market risk appetite, indirectly affecting the crypto market. The specific mechanisms are as follows:

1. Transmission of Monetary Policy Expectations

Inflation Cooling (Core PCE below expectations): If core PCE data shows a continued decline in inflation, approaching the Fed’s 2% target, the market will anticipate that the Fed may cut rates early or slow down rate hikes. Rate cuts mean increased market liquidity, lower funding costs, and rising risk appetite among investors. Some funds will shift from low-yield fixed income assets (like bonds) to risk assets such as cryptocurrencies, driving up crypto market prices.
Inflation Heating (Core PCE above expectations): If core PCE data exceeds expectations, indicating rising inflation pressures, the market will expect the Fed to maintain high interest rates or raise them further. Rate hikes increase funding costs, suppress investment and consumption, tighten market liquidity, and reduce risk appetite. Funds will flow out of risk assets (including cryptocurrencies), potentially putting downward pressure on the crypto market.

2. Risk Appetite and Capital Flows

Substitution Effect of Risk Assets: Cryptocurrencies are viewed as high-risk, highly volatile assets. When core PCE data points to loose monetary policy (such as rate cut expectations), investor risk appetite increases, and some funds shift from traditional risk assets (like US stocks) to the crypto market in pursuit of higher returns. Conversely, if core PCE data raises concerns about recession or runaway inflation, investors will prioritize cash, government bonds, and other safe-haven assets, leading to increased outflows from crypto.
Correlation with US Stocks: The crypto market has a strong correlation with US stocks. Core PCE data influences expectations for Fed policy, which in turn affects US stock movements. As a “barometer” of global risk assets, US stock gains or losses can transmit to the crypto market. For example, positive core PCE data leading to a stock rally may also lift crypto prices; conversely, a stock decline may pressure the crypto market.

3. Market Sentiment and Expectation Management

Short-term Volatility at Data Release: Around the time of core PCE data release, market sentiment can fluctuate significantly. If the data meets expectations, the market may remain stable; if it exceeds or falls short, it can trigger short-term panic or optimism, causing sharp price swings in crypto. For instance, an unexpected decline in core PCE may trigger a rapid rebound in crypto assets, while an unexpected rise could cause temporary market pressure.
Impact on Long-term Trends: The inflation trend reflected by core PCE influences long-term market expectations for Fed policy. If core PCE remains persistently above target, markets may anticipate prolonged tightening, putting long-term pressure on crypto. Conversely, if core PCE continues to decline, markets may expect prolonged easing, benefiting crypto from sustained capital inflows.

Summary: Core PCE data indirectly impacts the crypto market by influencing Fed monetary policy expectations, market risk appetite, and capital flows. Investors should closely monitor core PCE figures and their potential effects on monetary policy, combined with crypto-specific narratives (such as technological upgrades, regulatory developments, etc.) to make comprehensive market judgments.