Bitcoin traders have been betting for years the largest cryptocurrency by market cap could serve as an effective hedge against inflation. That's why they'll be watching Wednesday as the U.S. Labor Department publishes its Consumer Price Index (CPI) report for December.

The widely followed CPI, scheduled for release at 8:30 a.m. ET (13:30 UTC), is expected to show an acceleration in inflation, already at the highest point in 39 years, from the prior month.

A faster-than-expected uptick in prices could spur the Federal Reserve to tighten monetary policy aggressively over the next few months. That, in turn, could put more downward pressure on risky assets from stocks to bitcoin (BTC) and other cryptocurrencies.

The CPI is estimated to have risen 7.1% in the 12 months through December, according to data from FactSet. On a month-to-month, seasonally adjusted basis, the headline index probably rose 0.4%.

The core CPI, which excludes food and energy movements, is forecast to rise 0.5% month over month.

The report will be of special interest for the cryptocurrency investors who look at bitcoin as a hedge against inflation. The U.S. inflation rate surged to 6.8% in November, the highest since 1982.

Bitcoin prices quadrupled in 2020 and rose about 60% last year when traders said the Fed's loose monetary policies could ultimately lead to a fast climb in consumer prices.

But as inflation ticked up, and Fed officials signaled they would move aggressively to tackle inflation, the price trend has reversed: Bitcoin is down more than 13% over the past 30 days.

Here is what some experts expect from Wednesday’s report:

What this could mean for bitcoin:

“The key thing in reading tomorrow’s release is to understand the underlying causes of the current inflation, rather than focusing on the actual number,” Erlam said.