Bitcoin Slips As US Inflation Exceeds Estimates By 8.3%

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US inflation reached 8.3 percent in August, according to the latest consumer price index publication. Commodity prices rose 0.1% month-on-month. The publication cooled to a better-than-expected 8.1 percent. Markets reacted with panic, with both Bitcoin and Ethereum falling sharply after the data.

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Bitcoin and Ethereum were hit hard when inflation dropped.

US inflation print beats expectations.

US inflation fell for the second month in a row.

The Bureau of Labor Statistics published the Consumer Price Index on Tuesday, showing that commodity prices rose 8.3% year-on-year in August.

The 8.3% figure beat economists' expectations of a tepid 8.1%. It represents a 20 basis point decline from July numbers. CPI rose 0.1% month-on-month. According to the report, the increase in accommodation, food and medical expenses contributed the largest share to the increase in the inventory. The price of petrol has also decreased.

Markets reacted to the publication in a typically nervous manner. The S&P500, Dow Jones and Nasdaq futures all fell before the US market opened. Bitcoin responded to the publication with a sharp decline, sliding 3.3% to around $21,604 at press time. Ethereum was the worst hit, falling 5.8% to around $1,643. The sell-off was likely a better-than-expected 40 basis point decline.

Inflation remains a major concern for households in the United States and around the world. One of the main contributing factors is rising energy prices, partly due to Russia's invasion of Ukraine (as many countries have sanctioned Russia over the war, President Putin has left Europe to dump the country's rich energy supplies on the West. The epicenter of the biggest energy crisis in decades).

As commodity prices rise, central banks around the world have responded by raising interest rates to curb inflation. In the US Federal Reserve He signaled that he would take a brutal stance by the end of 2021, sending chills through crypto and global markets. The Fed has raised interest rates several times since then to levels between 2.25% and 2.5%. The Fed has repeatedly indicated that it is aiming for 2 percent inflation and central bank chairman Jerome Powell. He warned of the “pain” to come According to a speech in Jackson Hole last month, that means more hikes are on the horizon. Powell is expected to announce another 75 basis point hike at next week's FOMC meeting.

Crypto, the Fed and the CPI

Markets have paid close attention to both the Fed and CPI numbers in recent months. As the Fed passed its plan to increase rates, the rising inflation caused confusion in the markets. That's because hiking rates make it more expensive to borrow money, which hurts riskier assets as investors flee to traditional currencies like the dollar. For example, when the June CPI publication comes on 40 year high 9.1%Bitcoin and Ethereum suffered sharp selloffs.

As inflation numbers cooled, however, assets such as Bitcoin rallied. Similarly, somewhat opposite, investors They responded positively The Fed's latest interest rate hike. This is likely because the 75 basis point increase was smaller than some had initially feared (100 basis point increases have made the rounds in financial circles this year).

A shaky macroeconomic environment, witnessed by inflation and a hawkish Fed, has been one of the main reasons behind the crypto's months-long price decline. In November 2021, the global cryptocurrency market capitalization topped $3 trillion, while other markets hit all-time highs. Today, the position is close to $1.1 trillion.

With a hard supply cap of 21 million, Bitcoin is often considered inflationary (inflation was a critical narrative in the rally at the start of the pandemic, and has remained key to the idea of ​​Bitcoin's value when using issues like other crypto assets. smart contracts). However, it has been repeatedly confirmed that it will trade in relation to traditional markets, not this year. While rare crypto assets like Bitcoin are bets against inflation, they react to price increases over short time frames like traditional stocks. Although inflation may have slowed, as the Fed prepares to announce more hikes, crypto fans may have to wait a little longer for Bitcoin to get its next moment in the sun.

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

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