Bitcoin Slips As US Inflation Exceeds Estimates At 8.3%

Key takeaway

  • US inflation hit 8.3% in August, the latest consumer price index print revealed. The price of the goods increased by 0.1% on a monthly basis.
  • The press exceeded expectations of a cooling to 8.1%.
  • Markets reacted in a panic, with Bitcoin and Ethereum falling sharply shortly after the data dropped.

Share this article

Bitcoin and Ethereum were hit hard by falling inflation data.

The US inflation print exceeds expectations

US inflation declined for the second consecutive month.

On Tuesday, the Bureau of Labor Statistics released the latest report on the Consumer Price Index, which shows the price of goods rose 8.3% year-on-year in August.

The 8.3% figure exceeded economists’ expectations of a cooling to 8.1%. It marks a drop of 20 basis points from the July numbers. The CPI rose 0.1% on a monthly basis. According to the report, rising costs of housing, food, and medical care were the biggest contributors to the increase in all items. Gasoline prices, meanwhile, have seen a decline.

Markets reacted to the press in a typical panic-stricken way. The S & P500, Dow Jones and Nasdaq futures all collapsed before the US market opened. Bitcoin also fell sharply in response to press, slipping 3.3% to around $ 21,604 at press time. Ethereum was hit hardest, down 5.8% to around $ 1,643. Sales are likely a result of the press exceeding expectations of a 40 basis point drop.

Inflation has been a major concern for households in the US and around the world this year as countries battle rising prices across the board. One of the main contributing factors was the rise in energy prices, partly due to the Russian invasion of Ukraine (as many countries sanctioned Russia for war, President Putin tapped into the rich energy supplies of the country against the West, leaving Europe at the height of the biggest energy crisis of recent decades).

As the price of commodities rose, central banks around the world reacted by raising interest rates in an attempt to curb inflation. In the US, the Federal Reserve indicated it would take a hawkish stance in late 2021, which sent chills across the crypto and global markets. Since then, the Fed has raised interest rates several times to current levels of between 2.25% and 2.5%. The Fed has indicated multiple times that it is aiming for an inflation rate of 2% and central bank president Jerome Powell felt more “pain” on the way at his Jackson Hole speech last month, which could mean more hikes are on the horizon. Powell is expected to announce another 75 basis point hike at next week’s FOMC meeting.

Cryptocurrencies, Fed and CPI

Markets have been paying close attention to both the Fed numbers and the CPI in recent months. Since the Fed has committed to its rate hike plan, rising inflation numbers have sent market shocks. This is because rising rates make the cost of borrowing money more expensive, which tends to hurt risky assets as investors flee to traditional currencies like the dollar. For example, when the June IPC press arrived a maximum of 40 years of 9.1%Bitcoin and Ethereum experienced strong sales.

As inflation numbers cooled, however, assets like Bitcoin rose. Similarly, somewhat counterintuitively, investors reacted positively The Fed’s latest hike in interest rates. This is likely due to the fact that a 75bp hike was less than some had initially feared (talk of potential 100bp hikes has been around in financial circles during the whole year).

The shaky macroeconomic environment, punctuated by rising prices and an aggressive Fed, was a major factor behind the month-long price plunge in cryptocurrencies. Global cryptocurrency market capitalization surpassed $ 3 trillion while other markets hit all-time highs in November 2021; space today is worth closer to $ 1.1 trillion.

With its hard supply cap of 21 million, Bitcoin has often been touted as an inflationary hedge (inflation was an important narrative during its rally at the start of the pandemic and remained key to Bitcoin’s value proposition as other crypto assets tout use cases such as smart contracts). However, it has repeatedly been shown to work in correlation with traditional markets, not least this year. While scarce crypto assets like Bitcoin are a bet against inflation, they tend to react to rising prices like traditional stocks over short-term time frames. While inflation may have cooled, with the Fed poised to announce further hikes, cryptocurrency fans may wait a while before Bitcoin has its next moment in the sun.

This story is spreading and will be updated as more details emerge.

Disclosure: At the time of writing, the author of this piece owned ETH and several other cryptocurrencies.

Share this article

Leave a Reply

%d bloggers like this: