Crypto prices are strongly correlated with most macroeconomic factors. It is no longer debatable that inflation affects the trend in the crypto market. Most of the past declines in digital assets have been rooted in fluctuations in the overall global economy.
The crypto summer in the first half of the year gathered momentum due to strong inflation. However, due to the uncertainty of inflation in the economy, crypto prices have shown signs of decreasing. The latest data on the CPI pushed the market into another red zone.
The Consumer Price Index (CPI) is an economic indicator. Measurements Inflation is the movement in the cost of goods and services. The percentage increase in the CPI gives the economy’s inflation rate over a period of time.
However, the report for July brought little relief as CPI They pointed out Almost zero on inflation. With the positive nature of July’s data about the crypto industry, a lot of hope has been raised. Many participants expect better results in August, but their expectations have been met.
CPI data will be below the expectations of the crypto community.
Finally, the CPI report released in August contradicted the expectations of the crypto space. The result showed a 0.1% mom change and a 8.3% YoY change, indicating a mispricing for the industry. The CPI of the crypto market was estimated at -0.1% MOM and 8.1% YoY. Also, relative to the expected core CPI of 6.1%, the actual rate is a 6.3% YoY increase.
As a result of the CPI data, prices in the crypto market have started to decline. While BTC and ETH are falling, Bitcoin and Ethereum are taking the news badly.
The performance of crypto assets on CPI data is not surprising. This is due to the effect of inflation on cryptocurrency volatility. When making its monetary policy, the Federal Reserve always looks at the CPI.
Currently, the Fed is using a hawkish approach to control inflation in the US. However, according to Fed Chairman Jerome Powell, the Fed’s stance on controlling inflation will bring pain to businesses and households.
A potential hike in interest rates could hit the market.
Seeing the CPI data getting worse means more hawkish action from the Fed. A better report would have eased the Fed’s tightening measures. According to the CME Fed Watch tool, the Fed could force a 75bps hike in interest rates. Such price increases are a sad story for the value of crypto assets.
Despite the fading hope of a possible rescue in the crypto market, some hands are pointing to an upgrade to Ethereum. The combination is promising in the industry and may facilitate a price rally in the future.
But many traders are not confident in the success of the reforms. So the crypto market cannot have a convenient savior.
Featured image from CNBC, chart from TradingView.com