Crypto prices have maintained a strong correlation with most macroeconomic factors. It’s no longer debatable that inflation affects the trend in the crypto market. Most past digital asset declines took root from the swing in the general global economy.
The intensity of the crypto winter through the year’s first half had accumulated strength from potential inflation. However, due to the suspicions of inflation rise in the economy, crypto prices have shown signs of decline. The recent data on CPI have even pushed the market to another red region.
The Consumer Price Index (CPI) is an economic indicator that 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 for the given time.
However, the report for July brought a slight relief as CPI indicated almost zero impact on inflation. With the positive significance of July’s information on the crypto industry, lots of hope got high. Many participants expect a more favorable result for August, but their expectations have been squashed.
Finally, August’s released CPI report contradicts the crypto space’s expectations. The result revealed a 0.1% MoM change and an 8.3% YoY change, indicating a wrong value for the industry. The crypto market had estimated the CPI to be -0.1% MoM and 8.1% YoY. Also, against the anticipated core CPI of 6.1%, the real value is a 6.3% YoY rise.
With the outcome of the CPI data, prices in the crypto market have started dropping. Bitcoin and Ethereum are taking the news badly as BTC and ETH have plummeted.
The action of the crypto assets over the CPI data is not surprising. This is due to the impact of inflation on cryptocurrency volatility. While making its monetary policy, the Federal Reserve always considers the CPI.
Currently, the Fed is using a hawkish approach as its control measure over inflation in the US. But, per Fed chair Jerome Powell, the Fed’s stance in controlling inflation will bring pain to businesses and homes alike.
Seeing the CPI data getting worse means more aggressive curbing actions from the Fed. A better report would have eased the tightening measures of the Fed. According to the CME Fed Watch tool, the Fed may impose about a 75bps rise in the interest rates. Such a hike in rates is a sad story for the prices of crypto assets.
While hopes are dropping for a potential salvage in the crypto market, some hands are pointing to the Ethereum upgrade. The Merge is promising in the industry and could facilitate a price rally in the future.
But lots of traders have no confidence in the success of the upgrade. Hence, the crypto market could not have a handy savior.
Denis is a passionate writer and editor and he’s been writing in finance industry for almost 6 years.
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