Bitcoin price crashed and it experienced a significant drop in value at the beginning of the US trading session due to the release of higher-than-expected inflation data from the US Consumer Price Index. The cryptocurrency is currently trading at a 4.1% decrease, at $21,404, despite experiencing gains of 13% in the past week.
Why the Bitcoin Price Crashed After Negative CPI Data
As previously mentioned, many crypto traders anticipated the inflation data before deciding on their next moves. Unfortunately, the August data showed a 1% increase in prices from the previous month, disappointing those who hoped the rate might soon stabilize or decrease.
Is Bitcoin Really a Good Inflation Hedge, or Is It Just Hype?
Initially, it was believed that bitcoin and other cryptocurrencies could safeguard against inflation due to their fixed supply, appealing to investors seeking to protect their wealth from rising prices.
However, it has become clear that bitcoin and other digital assets are perceived as high-risk investments, similar to tech stocks, and their values tend to fluctuate in conjunction with them. This was not initially considered when evaluating the potential for bitcoin to function as an inflation hedge.
Tech stocks, which are often characterized by higher levels of risk, are typically valued based on anticipated future earnings. When interest rates rise, these earning projections can be impacted negatively.
There is a connection between tech stocks and cryptocurrency because individuals who invest in tech, particularly those in younger demographics, are more likely to own crypto. When investors are looking to reduce risk in their portfolios, tech stocks and crypto are frequently among the first assets to be sold.
Regarding the recent inflation data, while the annual rate has slightly decreased from July’s 8.5% to 8.3% in August, it is still expected that the US Federal Reserve will continue to implement aggressive interest rate increases to address inflationary pressures across the economy.
Inflation Surpasses Expectations
The slight decrease in inflation compared to July can be attributed to the recent decline in crude oil prices. However, core inflation, which does not consider food and fuel costs, was significantly higher than expected at 6.3%.
A reading of 6.1% had been anticipated. In July, the core inflation rate was 5.9%. The US Federal Reserve will be making its interest rate decision next week. There will likely be a 75 basis point increase, as the Fed chairman recently stated that the organization would take “forthrightly” action to address rising prices.
Bitcoin is trading at 75% below its all-time high of $68,789. S&P 500 futures predict a 2% drop in the index when the US equity market opens. Despite losing its recently gained $22,000 level, it is the $20,000 market that is most crucial for bitcoin to hold.
Despite this recent setback, there are indications that the cryptocurrency market may be approaching a bottom. Factors such as current deleveraging events and continued progress on the institutional front, such as Fidelity’s decision to allow its 34 million retail brokerage accounts to trade bitcoin, suggest a price recovery may be on the horizon.
In addition, Russia may begin using bitcoin in international trades as soon as next year, according to Bitcoin Magazine, which would be a significant development for the cryptocurrency.
There are other indicators that the crypto market may be recovering, such as the interest of crypto investors in projects in the gaming industry. For example, venture firms have continued to invest in GameFi, and there has been an awe-inspiring response to a Play-to-Earn meme coin called Tamadoge.
The meme coin, which aims to achieve widespread adoption for its game, has raised $15.5 million from investors in just over a month, which is almost as much as Ethereum raised in its initial coin offering token sale and more than STEPN was able to gather from investors, including FTX.
The price of Tamadoge will increase when the presale reaches $16 million, from 1 USDT buying 36.36 TAMA to 33.33, so those interested need to act quickly to avoid missing the subsequent price increase. The hard cap for the presale is $19 million.