US inflation data cryptocurrency market turmoil burning money
US dollar banknotes on fire falling down — Isolated on neutral background (Getty Images).

Spicy Inflation Data Sees Crypto Take a Tumble

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This morning was not exactly what you could call a ‘gm’.

Some spicier-than-expected US inflation data has seen the total crypto market drop 8.7% (roughly US$80 billion) in the last 12 hours.

A Bureau of Labor Statistics inflation report has shown that the consumer price index (CPI) rose by 0.1% in the last month, bringing an alarming increase of 8.3% over the past year. The news has come as a shock to the market as economists predicted headline inflation to fall 0.1%.

Cooling gasoline prices and improvements to supply chains weren’t enough to keep inflation at bay, with the CPI gain being driven by a 0.6% increase in core inflation — measured by removing volatile energy and food costs from the overall equation.

crypto market cap TradingView, inflation data
Total crypto market cap. TradingView.

Crypto assets took a big hit

As usual, cryptocurrencies and the stock market felt the brunt of the pain immediately following the announcement.

By market close, the Dow dropped a little under 4%, while the S&P 500 and Nasdaq fell 4.3% and 5.2% respectively. At the time of writing, Bitcoin (BTC) has sacrificed more than 50% of last week’s gains with a 10.3% drawdown to US$20,280.

Despite there being less than 24 hours until the Merge, the price of Ethereum (ETH) has also suffered a significant drawback, falling 9.3% to US$1,579. The losses in the digital asset market have been fairly evenly distributed with most other major cryptocurrencies all witnessing similar losses of a similar volume.

What’s next for markets?

If we look at the macro conditions around the recent market turmoil, the outlook isn’t exactly stellar.

Before the market was graced with Tuesday’s searing inflation news, traders seemed to agree that a hike of 75 basis points was on the cards. However, according to the FedWatch dashboard, investors now say that there’s a 38% chance of a 100 basis point hike at the Fed’s meeting next week.

In plain English, an additional rate hike from the Fed on September 21st would spell bad news for risk-on asset classes like cryptocurrencies and growth stocks. September has a knack for being a rough month for digital assets, historically, BTC has witnessed an average 8% decline throughout September every year for the last 5 years.

Helping clear up some of the confusion, prominent trader and Crypto Twitter luminary, Crypto Cred weighed in on the action — declaring that CPI data is more important than the Merge when trying to predict crypto’s next move.