Bitcoin has fallen to close to $20,000 after the official announcement of the Consumer Price Index (CPI) in the United States. According to the Bureau of Labor Statistics, the monthly cost of living survey showed that prices increased by 8.3% compared to August 2021. The market was expecting an 8.1% increase in inflation (y/y), which had a very negative influence on financial markets.
Bitcoin Falls to $20,300 with CPI Data Higher than Expected
Bitcoin fell in recent hours by over 10% to $20,300 as inflation data (CPI) in the United States shows inflation is not falling as fast as the market expected. While analysts considered that CPI could be 8.1% compared to August 2021, the CPI was 8.3% which is 0.2% higher than expected.
Traditional financial markets plummeted. The Dow Jones Index lost 1,300 points (close to 4%) on Tuesday. At the same time, the Nasdaq fell by close to 5% as investors anticipate higher interest rates in the coming months.
Data for specific sectors showed that inflation is now falling as fast as expected, and in some cases, it is growing even faster. One of the main reasons behind the most recent CPI reading is related to gas prices falling. However, food has increased by close to 11.4% in just a year. This is one of the largest increases for this economic sector since May 1979.
During a Discussion at the Cato Institute, Jerome Powell, the Fed Chair, said that they are committed to lowering inflation. On that matter, he stated:
“History cautions strongly against prematurely loosening policy. I can assure you that my colleagues and I are strongly committed to this project and we will keep at it until the job is done.”
Bitcoin and other cryptocurrencies massively fell in recent hours. Indeed, we see that digital assets have behaved in a similar way as traditional financial markets. This is due to the fact that Bitcoin and the whole crypto market are now becoming macro assets that trend with different macro events.
Inflation data shows that the U.S. Federal Reserve could continue increasing interest rates in the coming months but more aggressively. This could severely harm Bitcoin and other cryptocurrencies that are considered to be risk assets.
According to data shared by CoinGecko, Bitcoin has fallen by 9.5% over the last 24 hours. Ethereum (ETH), which is going to experience the so-awaited Ethereum Merge, fell by 6.4% during the same period of time.
Binance Coin (BNB), the largest cryptocurrency after Bitcoin and Ethereum lost almost 5% of its value during the same period of time. The cryptocurrency that experienced the largest drop among the top 70 was Solana (SOL) after falling by almost 13% over a period of 24 hours.
It might take some time before the crypto market starts recovering. Especially now that we could see a more aggressive FED trying to bring down inflation rates in the coming months.