Cryptocurrency prices have maintained a strong correlation with most macroeconomic factors. There is no longer any debate about the effect of inflation on the trend in the cryptocurrency market. Most of the previous declines in digital assets are due to swings in the general global economy.
The severity of the crypto winter during the first half of the year led to a buildup of potential inflation. However, due to the doubts about rising inflation in the economy, cryptocurrency prices are showing signs of decline. Even the latest data on the CPI has pushed the market into another red zone.
The Consumer Price Index (CPI) is an economic indicator measures Inflation through the movement of the cost of goods and services. The percentage increase in the CPI over a given period provides the economy’s inflation rate at the given time.
However, the July report provided a slight relief as the CPI shown Almost zero effect on inflation. With the positive significance of July’s information on the cryptocurrency industry, hopes are high. Many participants expected a better result for August, but their predictions failed.
CPI data falls short of crypto community expectations
Finally, the August CPI report contradicts expectations in the crypto space. The result showed a change of 0.1% MoM and a change of 8.3% YoY, indicating a false value for the industry. The crypto market estimated the CPI to be -0.1% MoM and 8.1% YoY. Also, against the expected core CPI of 6.1%, the real value is up 6.3% year over year.
With the result of the CPI data, prices in the cryptocurrency market started to decline. Bitcoin and Ethereum are dealing with the news poorly as Bitcoin and Ethereum are down.
The action of crypto assets on CPI data is not surprising. This is due to the effect of inflation on the volatility of the cryptocurrency. While setting its monetary policy, the Federal Reserve always takes into account the CPI.
Currently, the Fed is using a hawkish approach as a measure to control inflation in the US. But according to Federal Reserve Chairman Jerome Powell, the Fed’s stance on controlling inflation will bring pain to businesses and homes alike.
Possible rise in interest rates could hit the market
Seeing CPI data getting worse means more aggressive curbing action by the Fed. A better report would have eased the Fed’s tightening measures. According to the CME Fed Watch, the Federal Reserve may impose a 75 basis point hike in interest rates. This price hike is a sad story for crypto-asset prices.
While hopes for a possible bailout in the crypto market are fading, some hands are pointing to an Ethereum upgrade. The consolidation is promising in the industry and could facilitate price hikes in the future.
But many traders have no confidence in the success of the upgrade. Thus, the cryptocurrency market cannot be a useful savior.
Featured image from CNBC, chart from TradingView.com