The correlation between crypto prices and macroeconomic variables has been strong. It’s no longer debatable that inflation affects the trend in the crypto market. The swing in global economic conditions was responsible for most of the digital asset losses.
The intensity of the crypto winter through the year’s first half had accumulated strength from potential inflation. Crypto prices are showing signs of falling due to fears of an inflation increase in the economy. Recent data from CPI has even driven the market into a new red zone.
Consumer Price Index (CPI), is an economic indicator. measuresThe price movement for goods and services is an indicator of inflation. The percentage increase in the CPI over a given period provides the economy’s inflation rate for the given time.
CPI reported a slightly better July report. indicated almost zero impact on inflation. With the positive significance of July’s information on the crypto industry, lots of hope got high. Although many participants expected more positive results for August, they were disappointed.
CPI Data drops below crypto community expectations
Finally, August’s released CPI report contradicts the crypto space’s expectations. This result showed a 0.1% MoM increase and 8.3% YoY decrease, which is a false value for the sector. According to the crypto market, CPI was -0.1% MoM and 8.1% YoY. Furthermore, the actual value of the crypto market is 6.3% YoY higher than the core CPI expected to be 6.1%.
Prices in the cryptocurrency market are now falling due to the CPI results. BTC and Ethereum both are suffering as ETH and ETH plunge.
This is why the action of crypto assets in relation to CPI data does not surprise. Because of the effect inflation has on crypto volatility, this is not surprising. The Federal Reserve considers CPI when determining its monetary policy.
The Fed currently uses a hawkish approach to control inflation in the US. But, per Fed chair Jerome Powell, the Fed’s stance in controlling inflation will bring pain to businesses and homes alike.
Market could see a potential rise in interest rates
The Fed will take more severe measures to curb inflation if the CPI data gets worse. Better data would have helped ease the Fed’s tightening. CME Fed Watch suggests the Fed might impose an approximately 75bps hike in the interest rate. This is not good news for crypto assets.
Although there are no signs of a rescue in crypto markets, many people are still pointing out the possibility for an Ethereum upgrade. Merge, which is promising for the sector and could lead to price rallies in the future, seems likely.
However, many traders are skeptical about the upgrades success. Therefore, crypto markets are not likely to be a quick and easy rescue.
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