TOPLINE
Bitcoin suffered its biggest drop in three months on Tuesday, falling nearly 10% in the wake of a worse-than-expected August inflation report, as investors fear the Federal Reserve will raise interest rates for a third time this year, potentially sparking a so-called crypto winter.
KEY FACTS
Bitcoin continued a months-long fall Tuesday afternoon, dropping 9.35% to $20,304.73, following new Labor Department data that showed an 8.3% rise in consumer prices over the past 12 months ending in August, slowing for the second straight month, but still higher than economists had expected.
Bitcoin had been steadily climbing after briefly dropping below $20,000 on August 27, but is less than a third of what it was at its peak of $67,037 last November.
It’s the largest drop since June, when bitcoin fell from $28,636 on June 11 to $20.556 on June 16—it continued its downward trend to a low of $19,327 on July 1, and economists warned that a looming recession could erase the progress cryptocurrencies had made during the Covid-19 pandemic, when shares skyrocketed.
Elon Musk-backed cryptocurrency Dogecoin also fell 5.85% Tuesday, trading at 6 cents, while Ether dropped $7.96% to $1,586.92, and crypto broker Coinbase dropped 8.61%, to $75.44.
KEY BACKGROUND
Although low interest rates and Covid-19-related government stimulus checks fueled bitcoin’s rise in 2020, two rounds of interest rate hikes from the Federal Reserve this summer made investing riskier. Last month, Federal Reserve Chair Jerome Powell warned soaring inflation might “take some time” to ease and require the Fed to act “forcefully.” In the week ending June 17, outflows from bitcoin totaled roughly $423 million, after falling to an 18-month low, according to crypto firm CoinShares.
TANGENT
Stocks tumbled throughout the day Tuesday in the wake of the Labor Department’s consumer price index report, with the Dow Jones dropping 3.87% to $31,163.99 and the tech-heavy Nasdaq falling 3.76% to $61.70 as of Tuesday afternoon, erasing recent stock gains as the price of food, medical care and shelter increased, despite falling gas prices.
FURTHER READING
Dow Sinks 900 Points After Inflation Report Shows Stubbornly High Prices (Forbes)
Bitcoin slumps 7% after inflation report causes investors to flee risky assets (CNBC)
By Brian Bushard, Forbes Staff