Bitcoin and Ethereum both reacted badly to the publication of the Consumer Price Index in the United States. The metric is used to measure inflation in the U.S. dollar and hit 9.1% for June which represents an increase from May’s results.
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After the CPI printing, the cryptocurrency market plunged the days following. Inflation was still high and suggested that the U.S. Federal Reserve would be more active. This meant high inflation and severe pain for Bitcoin, as well as other risk-on assets.
At the time of writing, BTC’s price trades at $19,400 with a 3% loss in the last 24 hours. ETH’s price trades at $1,000 with a 3% loss in the last 24 hours hinting at potentially further losses for two larger cryptocurrencies by market capitalization.
Economist Alex Krüger noted a 40% decline in the price of these digital assets and a 7% decline in the S&P 500. This is due to the belief that Fed will be more aggressive in addressing inflation. The economist said:
The last CPI number triggered a massive crash, with the S&P falling 7% in 2 days. The ensuing crypto crash, which was so severe that CPI might be renamed the Crypto Pain Index, occurred simultaneously.
However, Krüger believes this time Bitcoin and Ethereum will be more impervious to the CPI print. Kruger believes that this metric beat market expectations the last time it was made public. This time, however, inflation is within limits.
The impact of this metric may have been estimated. According to the economist, the market “has already sold off considerably since Sunday in anticipation” of June’s CPI.
Inflation might have reached a top, but Krüger believes there is stale data from different sectors used to measure inflation. This point to a decline in energy prices which should contribute to a drop in July’s CPI. Bitcoin and Ethereum might have some breathing space.
Important context ahead of tomorrow’s CPI release:
Stale data on gas prices will have a significant impact on the headline inflation for last month.
The June average retail price has fallen, and the declining prices of oil and futures suggests that they will continue to decline. pic.twitter.com/3wmwqHzRH3
— Brian Deese (@BrianDeeseNEC) July 12, 2022
Bitcoin may experience some relief over the next months
In addition, the economist claims there are no large future events that could negatively impact BTC’s price. Following a capitulation event, the Fed will raise its interest rates by 75 basis points. The market has already priced it in.
The June CPI print could cause downside market action for the traditional markets in the near term. As it has been happening over the past months, this selling pressure will spill over to the crypto market, but without turning into a “trend defining” event.
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Traditional equities will hold the key to any recovery. Many believe that the crypto market will reach a bottom when stocks start trending upwards.
The market agreed with me: Inflation number does not match June’s and is therefore trend-defining.
There is too much panic.
— Alex Krüger (@krugermacro) July 13, 2022