Crypto markets fall to two-year lows after disappointing inflation report
Top line
Crypto markets fell on Thursday morning in anticipation of new federal data, which revealed that consumer prices rose 8.2% over the past 12 months – a continued crypto slide as investors fear rising inflation and another round of potential rate hikes could tip the economy into a recession and a feared “crypto winter”.
Cryptocurrencies took a dive Thursday ahead of the Labor Department’s latest inflation report … [+]
Keywords
Bitcoin, considered the “gold standard” of the crypto market, fell 3.91% on Thursday to $18,404, continuing a steady decline from a peak of $63,599 last November, hitting its lowest point since December 2020.
The second-largest cryptocurrency, Ethereum, also fell 6.53% to $1,221.40 in the wake of the Labor Department data, which also showed overall prices rose 0.4% in the past month, above economists’ predictions of 0.3 %.
Billionaire Elon Musk favorite Dogecoin, meanwhile, fell 5.62% to $0.057.
The drop comes a month after bitcoin fell 9.35% to $20,304 — its biggest drop since June — following the Labor Department’s August inflation report, which showed an 8.3% 12-month increase in consumer prices.
OANDA senior market analyst Craig Erlam said crypto’s decline is part of a recent slide, even as other “high-risk assets,” including tech stocks, are expected to rise — though Morgan Stanley strategist Michael Wilson said those gains may not last long in economic situations. uncertainty from Russia’s ongoing war in Ukraine and economic volatility weakening the dollar.
Key background
Low interest rates and stimulus checks from the Covid era helped fuel bitcoin’s rise in 2020 and 2021, peaking last November. However, recent inflation reports and three rounds of rate hikes by the Federal Reserve this summer and fall made investments riskier, accelerating the crypto decline. In an interview with CNBC on Monday, JPMorgan Chase CEO Jamie Dimon warned that rising interest rates along with short energy supplies from Russia’s invasion of Ukraine are “very, very serious things” that will “probably put the U.S. into some kind of recession” in the next six to nine months. These have been bad signs for bitcoin, which fell below $20,000 on August 27 following the Labor Department’s inflation data. It was the biggest drop since June, when it fell from $28,636 to $20,556.
What we don’t know
How the Federal Reserve will continue to tackle inflation, and whether that means a fourth rate hike. In the most recent month, interest rates rose by another 0.75 percentage points – an attempt to cut inflation by making borrowing more expensive and dampening demand, although economists are torn about the effects another rate hike could have on the economy, and some worry that it could drive it into recession.
Further reading
Inflation rose worse than expected by 8.2% in September (Forbes)
‘Very, Very Serious’ – JPMorgan CEO Issues Strong ‘Panic’ Warning That Could Hit Bitcoin, Ethereum and Crypto Price (Forbes)
Bitcoin becomes less volatile as stocks raise warning flags (Bloomberg)
