Crypto markets rise as stocks slide after latest inflation data

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The broader cryptocurrency market was up as high as 6.99% in the past 24 hours, while the stock market is down nearly 2% on the news.

Important points

• For most of 2022, the crypto space had largely followed the ups and downs of the US stock market. That correlation appears to be weakening.
• The US Bureau of Labor Statistics released September’s inflation numbers which saw an 8.2% increase in commodity prices compared to the previous year.
• As inflation continues to rise, it is all but certain that the Federal Reserve will raise short-term interest rates by 0.75% next month.

On Thursday, the government released September’s inflation figures, and we saw the rate of inflation rise to a higher-than-expected 8.3% compared to September 2021. It marks the 16th consecutive month of mid- to high-single-digit inflation. This level of consistently higher commodity costs is likely to cause the Fed to push interest rates up by 0.75% when it meets next month to try to cool the red-hot economy.

A tale of two asset classes

Interestingly, the gloomy inflation news seems to have triggered a disconnect between the crypto sector and the tech stock market, which has mirrored closely throughout 2022. According to CoinMarketCap, the total market capitalization across cryptocurrency exchanges in the last 24 hours rose as high as 6.99% since inflation figures released yesterday. In addition, the largest and most valuable crypto asset – Bitcoin – has increased by more than 7% in the same period.

However, the S&P 500 – which tracks the share prices of the 500 most valuable companies – is down 1.83% as of this writing. This new divergence between stocks and cryptocurrencies could be a signal of better things to come for the digital asset market. As inflation remains high – which appears to be the new normal despite the efforts of the Fed – inflation will erode and depress the value of the dollar. A falling dollar is a good thing for cryptocurrency assets, which are inversely correlated.

Both the crypto and stock market have baked in the belief that the Fed will pump short-term interest rates another 75 basis points in November. We will have to see if the gains finally manage to freeze inflation by the end of the year, while watching how the stock and crypto markets react to more expensive access to dollars due to the Fed’s hawkish policy.