Why Bitcoin, Ethereum and Dogecoin are Falling Today

What happened

Shares in several cryptocurrencies fell today after a key inflation report came hotter than expected this morning.

Over 24 hours, the price of the world’s largest cryptocurrency, Bitcoin (BTC -1.53%)and the second largest cryptocurrency, Ethereum (ETH -0.81%), traded almost 3% down at 10:17 ET today. The price of the meme token Dogecoin (DOGE -2.64%) traded more than 4% lower.

So what

This morning, investors were anxiously awaiting the latest reading of the Consumer Price Index (CPI), which tracks the prices of a basket of common consumer goods and services and is a calculation the market uses to keep track of inflation. Economists had expected the CPI to grow 8.8% year-on-year in June, but the CPI rose 9.1%, which renewed fears of sharp inflation.

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Gasoline led the index and was up 11.2% year over year when the broader energy category in June jumped 7.5%. Other major increases came from tools and transportation. Within the crisis center category, the rent index increased 0.8% from May, the largest monthly increase since 1986.

“The June release of the CPI was an ugly push, it was impossible to get around it,” Cliff Hodge, chief investment officer at Cornerstone Financial, told Bloomberg. “The Fed has no choice but to follow a more aggressive path, which increases the likelihood of recession next year.”

The Federal Reserve’s interest rate setting committee is likely to choose to raise its reference rate overnight, the Federal Funds rate, by a further 75 basis points (0.75%) at its meeting later this month. The Fed made a 0.75 percent increase at its June meeting. Several interest rate increases make debt more expensive for consumers and can slow down economic activity, which is why the chance of a recession increases as the Fed remains hawkish.

Cryptocurrencies have not performed well under the rising interest rate environment this year, with the price of Bitcoin down almost 60% this year. Rising interest rates increase the return on safer assets such as bonds, making more risky assets such as cryptocurrencies less attractive.

Investors have been pretty bearish on Bitcoin lately. In the latest Bloomberg MLIV Pulse survey, about 60% of the 950 investors surveyed said they believe Bitcoin will trade at $ 10,000 before reaching $ 30,000.

What now

Inflation is undoubtedly incredibly high, which has been a headwind for such as Bitcoin and other cryptocurrencies. If there is any good news to pick up, it is that we know that commodity prices have started to fall in July and there have been indications that the economy is also starting to slow down.

While Bitcoin may certainly have more pain going forward, I’m still optimistic about the token’s long-term outlook. Bitcoin is gaining more acceptance in the ordinary financial system, and cryptocurrencies are gaining ground all over the world. This leads me to believe that the pioneer in blockchain technology and crypto is here to stay.

I also like Ethereum, which has seen its smart contract technology used in a variety of applications, such as for non-fungible tokens, digital identities and decentralized finance.

I still have no interest in the meme token Dogecoin because I do not see anything unique about it from a technical point of view or in terms of use in the real world.