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Crypto prices are likely to swing in step with stocks after the release of inflation data.
Dreamstime
Bitcoin
prices were falling Tuesday after data showed U.S. inflation rose more than expected in August—giving traders their latest hint that the Federal Reserve will continue to tighten financial conditions in a way that could hurt digital assets.
The price of Bitcoin has dropped 4% over the past 24 hours to $21,500, having previously traded in the green around $22,400 before the release of the U.S. consumer-price index (CPI) for August. The largest digital asset had been on a rally since late last week when it popped up from around $18,500 and return to the $20,000 to $25,000 range in which it has traded since a mid-June selloff knocked it down from $30,000.
Consumer prices climbed 8.3% year over year last month, representing a slight slowdown from the 8.5% annual surge in July, while CPI increased 0.1% on a month-over-month basis. Economists had expected 8% year-over-year growth. It’s not what investors were hoping for, and Bitcoin is following the stock market lower, with futures for the
Dow Jones Industrial Average
and
S&P 500
turning sharply down after the data release.
The Federal Reserve has aggressively tightened financial conditions in 2022 as it fights the highest inflation in decades—a shift that has raised the risk of recession and knocked cryptos and stocks alike. Bitcoin has tumbled more than 50% this year amid a selloff in risk-sensitive assets. Traders wanted to see signs that inflation has peaked or is cooling. This would have eased pressure on the Fed—whose officials have reiterated a commitment to taming red-hot prices—ahead of its next interest-rate decision following a Sept. 20-21 meeting.
“The U.S. inflation numbers have confirmed that inflation is still running hot,” said Naeem Aslam, an analyst at broker AvaTrade. “This has made the situation a lot more difficult for the Fed who have been trying their best to tame inflation. The data has confirmed that the Fed’s bullets aren’t killing inflation and this is going to be a concern for many traders.”
So where could cryptos halt their Tuesday slide? One analyst sees the outlook for Bitcoin being difficult from a technical perspective—and suggests it could fall more than 10% further from current levels.
“An oversold bounce has lifted bitcoin from longterm support in the $18,300 to $19,500 area,” said Katie Stockton, managing partner at technical research firm Fairlead Strategies. “As it stands, we assume the bounce will fail near resistance [around $23,000] given the prevailing negative longterm momentum, and we would be sellers on a reversal down in our short-term gauges.”
Beyond Bitcoin, digital assets were even weaker, with
Ether
falling 6% to $1,625. Trading in the second-largest crypto has been volatile ahead of a hotly-anticipated fundamental upgrade known as The Merge, which is expected to complete Thursday.
Altcoins, or smaller cryptos, were even worse.
Solana
plunged 5% and
Cardano
shed 8%. Memecoins—initially intended as internet jokes—were in the red, with both
Dogecoin
and
Shiba Inu
losing about 6%.
Write to Jack Denton at jack.denton@dowjones.com