Cryptocurrencies Bitcoin and Ethereum Experience Decline Following Market Reaction to CPI Data
The value of Bitcoin experienced a decline of more than 4% on Thursday morning, reflecting a broader negative sentiment in the cryptocurrency market as investors turned risk-averse.
According to data from CoinGecko, Bitcoin saw a 4% drop to approximately $58,500, while Ethereum also decreased by 3.8% to around $2,630. The overall market capitalization of all cryptocurrencies followed suit, contracting by 4.4% to $2.1 trillion.
This downward trend occurred in the aftermath of the release of the Consumer Price Index (CPI) report by the Labor Department on Wednesday, which indicated a 0.2% rise in prices for July, leading to an annual inflation rate of 2.9%.
Economists’ expectations were met by these figures, suggesting a stabilization in inflationary pressures. The core CPI, which excludes volatile food and energy prices, also aligned with forecasts, showing a 0.2% monthly increase and a 3.2% annual rate.
Matt Hougan, CIO of Bitwise Invest, described the CPI report as “boring” but essential for maintaining the Fed’s rate-cutting plans and discussions at the upcoming Jackson Hole summit.
While the CPI data may have tempered initial excitement, opinions among market analysts are split on the long-term impact on cryptocurrencies, with a recent forecast indicating that Bitcoin may not experience significant growth until the final quarter of the year.
The recent price decrease in Bitcoin coincided with the U.S. government transferring nearly $600 million in seized BTC from the Silk Road dark web marketplace to Coinbase. Such transfers typically precede a sale of the seized Bitcoin, potentially influencing price movements as investors speculate on the outcome.
Additionally, U.S. Bitcoin spot ETFs recorded net outflows of $81.4 million on August 14, ending a two-day inflow streak. The Grayscale Bitcoin Trust (GBTC) continued to see outflows, shedding $56.9 million, while U.S. spot Ethereum ETFs experienced net inflows of $10.8 million.
CryptoQuant noted a divergence between the price of Bitcoin and the holdings of the German investment fund ETC Group Physical Bitcoin (BTCE), historically closely correlated. The firm highlighted a shift in this correlation, suggesting changing market dynamics or other influences requiring further analysis.
Despite the recent price drop, Sharat Chandra, Founder of EmpowerEdge Ventures, remains cautiously optimistic, pointing to bullish technical indicators and anticipating a rebound in crypto prices with the possibility of a 50 bps rate cut by the U.S. Federal Reserve in September.
