TOPLINE
Crypto markets tumbled Thursday morning in anticipation of new federal data, which revealed consumer prices rose 8.2% over the past 12 months—continuing crypto’s fall as investors fear rising inflation and a new round of potential interest rate hikes could tip the economy into a recession and a dreaded “crypto winter.”
KEY FACTS
Bitcoin, considered the “gold standard” in the crypto market, fell 3.91% on Thursday, to $18,404, continuing a steady decline from a peak of $63,599 last November, and reaching its lowest point since June.
The second-largest cryptocurrency, Ethereum, also dropped 6.53%, to $1,221.40 in the wake of the Labor Department data, which also showed overall prices rose 0.4% over the past month, over economists’ predictions of 0.3%.
Billionaire Elon Musk favorite Dogecoin, meanwhile, fell 5.62%, to $.057.
The drop comes one month after bitcoin fell 9.35%, to $20,304—its largest drop since June—following the Labor Department’s August inflation report, which showed an 8.3% 12-month rise in consumer prices.
OANDA senior market analyst Craig Erlam said crypto’s decline is part of a recent slide, even as other “high-risk assets,” including tech stocks, are expected to rally—although Morgan Stanley strategist Michael Wilson said those gains might not last long amid economic uncertainty from Russia’s ongoing war in Ukraine and economic volatility weakening the dollar.
KEY BACKGROUND
Low interest rates and Covid-era stimulus checks helped fuel bitcoin’s rise in 2020 and 2021, to its peak last November. Recent inflation reports and three rounds of Federal Reserve interest rate hikes this summer and fall, however, made investing riskier, accelerating crypto’s decline. In an interview with CNBC on Monday, JPMorgan Chase CEO Jamie Dimon warned rising interest rates compounded with short energy supplies from Russia’s invasion of Ukraine are “very, very serious things” that are “likely to put the U.S. in some kind of recession” in the next six to nine months. Those have been bad signs for bitcoin, which dropped below $20,000 on August 27 following the Labor Department’s inflation data. At roughly $890 billion, the overall crypto market has wiped out virtually all its gains since January 2021, according to CoinMarketCap.
WHAT WE DON’T KNOW
How the Federal Reserve will continue to tackle inflation, and if it means a fourth interest rate hike. Its latest last month raised rates another .75 percentage points—an effort to cut inflation by making borrowing more expensive and tempering demand, although economists are torn on the effects another rate hike could have on the economy, with some worrying it could drive it into recession.
FURTHER READING
Inflation Spiked Worse-Than-Expected 8.2% In September (Forbes)
By Brian Bushard, Forbes Staff