Bitcoin, Ethereum falls when inflation exceeds expectations

Inflation continued to accelerate in June after showing an increase in May, a potentially negative sign for crypto markets that have faltered as the Federal Reserve raises interest rates in response to rising prices.

The Consumer Price Index (CPI), which tracks price movements across a wide range of goods and services, rose 9.1% during the 12 months to June, the largest 12-month increase in over 40 years, according to the Bureau of Labor Statistics ( BLS) reported Wednesday.

“This is a hell of a read,” said Torbjørn Bull Jenssen, CEO of the crypto investment company Arcane Decrypt, based on the report exceeding analysts’ expectations of 8.8%. “Personally, I struggle to see how we should not end up with a recession.”

The biggest monthly gains for the index came from food, shelter and the price of petrol. The energy index rose as much as 7.5% on a month-on-month basis and accounted for almost half of the increase in headline inflation in June, compared with an increase of 3.9% in May.

The price of energy for consumers has risen by 41% in the last year, and electricity has become almost 14% more expensive in the 12 months to June, which indicates the largest annual increase since 2006.

Rising electricity prices have also exacerbated the pain experienced by mining in the midst of a market crash.

“Energy prices, combined with falling Bitcoin prices and increased competition, have weighed heavily on crypto miners, who have seen their operating costs rise,” said Dessislava Aubert, an analyst at data provider Kaiko for digital assets. Decryptwith reference to recent moves by miners to sell some of their storage of digital currencies. “Sales are likely to increase as market conditions remain challenging, this will also put short-term downward pressure on BTC prices.”

Price increases on the horizon

Last month, the Fed raised interest rates by 75 basis points, delivering its steepest rate hike since 1994 in response to May’s inflation measurements.

Today’s Inflation Report is likely to cement its ambitions to deliver another 75 basis point rate hike later this month, as it seeks to curb inflation aggressively by making it more expensive to borrow, thus cooling the economy.

“Institutions often live by the ‘do not fight the Fed’ motto,” said Mike Boroughs, managing partner of blockchain investor Fortis Digital Ventures. “If the Fed has to become more aggressive, it will probably prolong the time before the institutions start accumulating a lot of crypto.”

Rising interest rates have made equities and other risky assets less attractive compared to corporate bonds and US government bonds, which have lower returns but are supported by the government in terms of gains. They are considered among the safest investments, and there are leading institutions to sell from cryptocurrencies.

“For this space to recover, it must be made by Wall Street,” Edward Moya, senior market analyst at OANDA, told Decrypt.

Moya noted that retail investors were still extremely confident over the past three years, but that they had recently suffered heavy losses and were “shaken” financially.

Cryptocurrencies respond to the Inflation Report

Following the release of the CPI report, the cryptocurrency markets fell.

The price of Bitcoin fell up 4% per hour after the publication of the Inflation Report and Ethereum fell by more than 6%, extending weekly losses for the second largest cryptocurrency to over 10%, according to CoinMarketCap.

At one point, the inflation report pushed Bitcoin down by as much as 6%.

Other coins with less market value received similar hits. Cardano, Solana, Polkadotand Dogecoin booked daily losses upwards of 5%, while Uniswap overturned 6.7% and Polygon‘s MATIC plunged 7.4%, according to CoinMarketCap.

Bill Noble, senior market analyst at Token Metrics, a cryptocurrency investment firm, said that altcoins require a continuous flow of money to maintain market values, and that they are less likely to see it in periods of wider sales.

“If the market goes down, some of these altcoins, in terms of price, may disappear, or they may have to be priced in total for lack of demand,” he said. Decrypt. “In other words, there is no natural buyer, there is only retail and [venture capital] seller.”

Noble believes the inflation report will inspire panic among the cryptocurrency markets, as investors are forced to sell under financial distress and liquidation pressure from creditors further manifest, with companies such as Celsius, Three Arrows Capital and Voyager.

“[Investors] may not want to sell Bitcoin under 20k – they may have to – just to try to recoup the losses they incurred by borrowing money for these different cryptocurrencies, “said Noble Decrypt. “This inflation rate and mass liquidation may inspire the most incredible fears we have seen since 2008 or 1929.”

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