Bitcoin bulls foiled again as price tumbles back to $86,000, giving up CPI gains and more

To the dismay of the bulls, crypto markets continued with their whipsawing action again on Thursday, with large early gains being more than reversed over a very short time frame.

Happening over a period of a couple of hours as opposed to yesterday's couple of minutes, the size of today's reversal was nearly as large, with leading crypto bitcoin BTC$86,971.58 slumping from a session high of $89,300 to as low as $85,500. At press time BTC was changing hands at $86,000, lower by 0.8% over the past 24 hours. The Nasdaq was off session highs of about 2%, but still sharply ahead with a 1.7% advance.

The early gains came alongside a much-cooler than forecast November U.S. Consumer Price Index report, with headline inflation tumbling all the way to 2.7% from 3% previously. That data had some quickly penciling in another Federal Reserve rate cut in January, which — all things being equal — would tend to be good for risk assets, including crypto.

Skeptics, however, quickly dove into the outlier inflation numbers. "Major issue was zeroing out rent/owner's equivalent rent (OER) in October," wrote well-followed economist Omair Sharif. Unless the BLS adjusts, he continued, it will artificially lower year-over-year CPI prints until April

"This is totally inexcusable," wrote the WSJ's Nick Timiraos. "The BLS just assumed rent/OER were zero for October ... There is just no world in which this was a good idea."

At the moment, markets appear to be agreeing with the skeptics, with odds of a January rate cut not having budged from their previous slim 24% chance.

BTC rangebound, ETH hedging

Traders in the crypto options market appear to be adjusting their expectations, with bitcoin and ether ETH$2,914.95 showing diverging sentiment, according to data from Wintermute. Bitcoin options activity points to a range-bound outlook as traders continue to sell downside protection below $85,000 and cap upside exposure above $100,000.

This is "pointing to confidence in support holding and limited expectations for a sustained breakout in the near term," the market maker's OTC trading desk wrote in a note.

Ether options, by contrast, show less conviction and more hedging behavior. Support appears to be forming around the $2,700 to $2,800 range, but upside calls above $3,100 are being sold aggressively, suggesting traders are seeking protection over upside.