Why Bitcoin, Ethereum and the Shiba Inu are falling today

What happened

Most cryptocurrencies are falling today along with tech stocks, as investors prepare for key inflation data tomorrow that has the potential to move markets in a big way.

Over the past 24 hours, the price of the world’s largest cryptocurrency, Bitcoin (BTC -3.44%), had fallen about 4% by 2:49 PM ET today. In the same timeframe, the price of the world’s second largest cryptocurrency, Ethereum (ETH -5.20%)had dropped about 5%, and the price of the meme token Shiba Inu (SHIB -3.26%) traded almost 8% lower.

So what

Tomorrow morning, the US Bureau of Labor Statistics (BLS) will release July data for the Consumer Price Index (CPI), which tracks the prices of a wide range of consumer goods and services. Investors use it as a way to measure inflation. In June, the CPI surprised the market, rising 9.1% year-on-year. But investors were somewhat relieved because a large part of the gain came from a rise in energy and gasoline prices, which began to fall in July.

Image source: Getty Images.

Economists expect an 8.7% year-on-year increase for July, reflecting the drop in energy prices, but investors will also be hoping to see other price categories fall too, be it transport, food or rent.

If the CPI comes in at 8.7% or lower, there’s a good chance the market will react positively because that could mean inflation is picking up, which could allow the Federal Reserve to calm down a bit when it comes to raising interest rates. If the CPI comes above 8.7%, the market may not react so positively. Rising prices have crushed the likes of Bitcoin and other cryptocurrencies this year because higher prices make risky growth assets less attractive, and crypto had been broke in 2021.

But investors are beginning to believe that the worst may now be behind crypto. JPMorgan Chase analyst Kenneth Worthington recently said in a research note that crypto has “found a floor despite trading volumes remaining depressed.”

Worthington attributes this to investors settling down after the collapse of the algorithmic stablecoin TerraUSD and is now less concerned about the impact on the broader crypto market. In addition, investors also seem to be excited about a series of ongoing upgrades to Ethereum’s network that are expected to drastically improve the network, which could be completed sometime this year.

What now

Although crypto appears to have stabilized in recent weeks, it still appears to be trading with some correlation to tech stocks, as evidenced by today’s trading activity and investors’ anxiety over tomorrow’s CPI report.

I think if the CPI comes in worse than expected and stocks fall, Bitcoin could go lower and fall back to some of the yearly lows it saw in June. If the CPI comes in better than expected, it probably has a good chance of sending crypto prices higher.

Long-term, I see Bitcoin and Ethereum as good investments, given their growing acceptance worldwide and in the mainstream financial system. I have no interest in the meme token Shiba Inu because it has no practical use cases or technical advantages over other cryptocurrencies.