Bitcoin plunged 1.5% within minutes after the release of the latest US Consumer Price Index (CPI) which rose in May, contrary to analysts’ expectations.
The CPI rose 8.6% year-on-year in May, compared with an 8.3% rise in April, according to a release from the Labor Department. Markets were expecting a figure of 8.1%.
Bitcoin is now trading below the $30,000 mark, with the potential for an even bigger drop. The most pessimistic scenario predicts that the token could fall as low as $15,000 in the short term.
High US inflation now portends bigger interest rate hikes from the Federal Reserve, which means more cuts for risky markets that will be less attractive.
US inflation shows no signs of slowing down, Fed to raise interest rates
Prices rose across the board, with housing, fuel and food being the main contributors to inflation. The data represents a mixture of the effects of the war between Russia and Ukraine, as well as the last two years of monetary policy easy due to the COVID-19 pandemic.
This now means the Fed will have to raise rates even further to combat runaway prices. Data from the CME Group shows that 95.7% of investors expect the Fed to hike 125 to 150 basis points at its meeting next week.
The Fed raised rates by 50 basis points in May. Even that caused BTC to drop more than 10%. With inflation and interest rates rising, the U.S. economy could slip into recession, which portends further problems for BTC and the cryptocurrency market.
The inflation engine is running full blast and there is still plenty to come… Traders and investors are worried as the chances of a recession are only increasing with each passing day.
Naeem Aslam, Chief Market Analyst at Avatrade.
No respite for BTC and cryptocurrencies
Given the close connection between bitcoin and US tech stocks, the token looks likely to suffer more in the days ahead. Rising interest rates and high Treasury yields are detrimental to tech stocks and, therefore, BTC.
Bitcoin’s weakness should in turn be reflected in the cryptocurrency market. Most altcoins are also down for the day following the release of inflation numbers.
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