Cryptocurrencies Fall Amid Broader Market Sell-Off After CPI Reading
Cryptocurrencies experienced a decline on Tuesday as part of a wider market sell-off following the release of a higher-than-expected Consumer Price Index (CPI) report. Bitcoin, in particular, saw a drop of 0.8%, trading at $49,658.57, after sinking to as low as $48,372.89. The U.S. Bureau of Labor Statistics’ report on January’s CPI exceeded economists’ predictions, causing yields to rise and putting pressure on risk assets.
Jurrien Timmer, Fidelity Investments’ director of global macro, stated that Bitcoin’s price is influenced by monetary policy due to its status as an aspirational store of value. The unexpected CPI report suggests that the Federal Reserve is further from making any changes, which means higher nominal and real rates could persist. This diminishes the urgency to hold Bitcoin as a store of value.
Despite the temporary pause in the crypto rally caused by the CPI report, Nico Cordeiro, chief investment officer at Strix Leviathan, believes that the rally will continue. However, if inflation continues to exceed expectations, investors should anticipate long-term weakness. Contrary to popular belief, Bitcoin is not an inflation hedge but rather an indicator of liquidity within the financial system.
Bitcoin Falls Below $48,000 Level
The crypto exchange Coinbase experienced a 4.7% decline, while Microstrategy, a bitcoin proxy, lost 4.39%. Miners also faced pressure but managed to trim their earlier losses. CleanSpark and Iris Energy both fell by less than 1% after dropping up to 4%. Marathon Digital slid 5.72%, and Riot Platforms retreated by 3.02%.
Bitcoin remains above the $48,600 level, which is being closely watched by investors and chart analysts. Sustained closes above this level could support new highs above $50,000 and potentially an all-time high. The cryptocurrency reached its record of $68,982.20 on November 10, 2021.
Ether remained relatively flat, while Solana’s SOL token gained 1.79%. Yuya Hasegawa, a crypto market analyst at Bitbank, noted that ether led the crypto rally on Monday due to anticipation of Ethereum’s upcoming tech upgrade in March and renewed interest in non-fungible tokens (NFTs).
In conclusion, while the CPI report caused a temporary decline in cryptocurrencies, Bitcoin’s long-term trend is expected to continue. However, if inflation remains higher than expected, weakness may persist. Investors should be aware that Bitcoin is not an inflation hedge but rather an indicator of liquidity within the financial system.
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