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Bitcoin and Ethereum have been hit hard as inflation data dropped.
US inflation fell for the second month in a row.
Published by the Bureau of Labor Statistics Latest Consumer Price Index Report Tuesday showed commodity prices rose 8.3% on a yearly basis in August.
The 8.3% figure beat economists’ expectations for a cooling to 8.1%. This represents a decline of 20 basis points from the July numbers. CPI rose 0.1% month-on-month. Rising shelter, food and medical costs were the biggest contributors to the increase of all items, according to the report. Gasoline prices, on the other hand, fell.
Markets reacted to the print in a typically panicked fashion: S&P 500, Dow Jones and Nasdaq futures all plunged before the US market opened. Bitcoin has also suffered a sharp decline in response to the print, with him down 3.3% to around $21,604 at the time of writing. Ethereum took another hit, dropping 5.8% to around $1,643. The sale is probably the result of better than expected printing which was down 40 basis points.
Inflation has been a major concern for households in the United States and around the world this year, with the country as a whole continuing to battle rising prices. One of the main factors has been rising energy prices, partly thanks to Russia’s aggression in Ukraine (many countries have imposed sanctions on Russia for this war, so much so that Putin has threatened the West with the country’s riches). leveraged the energy supply and left Europe behind). on the edge of the biggest energy crisis in decades).
As commodity prices rose, central banks around the world responded by raising interest rates to keep inflation in check. In the US, the Federal Reserve has suggested taking a hawkish stance in his second half of 2021, sending chills to cryptocurrencies and global markets. Since then, the Fed has raised interest rates from his current 2.25% to 2.5% levels multiple times. The Fed has indicated several times that he is targeting 2% inflation, and Central Bank Chairman Jerome Powell Warning of more “pain” ahead In his speech at Jackson Hole last month, it could mean further rate hikes are on the horizon. Powell is expected to announce another 75 basis point rate hike at the FOMC next week.
The market has been paying close attention to both the Fed and CPI numbers in recent months. Rising inflation has shocked markets since the Fed committed to its rate hike plan.This is because rising interest rates make it more expensive to borrow money and tend to hurt risk-on assets as investors flee to traditional currencies like the dollar. exponent is 40-year high of 9.1%Bitcoin and Ethereum plummet.
But when inflation fell, assets such as Bitcoin rose.Similarly, somewhat counterintuitively, investors responded positively to the Federal Reserve’s recent rate hikes. This is probably because the 75 basis points uptrend was lower than some had initially feared (talk of a possible 100 basis points uptrend circulated in financial circles throughout the year).
Rising prices and a volatile macroeconomic environment punctuated by a hawkish Fed are among the main factors behind the multi-month price declines of cryptocurrencies. Global cryptocurrency market cap surpasses his $3 trillion as other markets hit all-time highs in November 2021. Today, this space is worth nearly $1.1 trillion.
Bitcoin, with a hard supply cap of 21 million, has often been touted as a hedge against inflation (inflation was an important story when it rose early in the pandemic, and other crypto assets were smart contracts). . However, it has repeatedly proven to trade in correlation with traditional markets, especially this year. Inflation may have subsided, but with the Federal Reserve ready to announce further rate hikes, crypto fans should It could be a while before Bitcoin hits its next moment.
This story is a work in progress and will be updated as more details become available.
Disclosure: At the time of writing, the author of this article owned ETH and several other cryptocurrencies.
