Bitcoin was lower for a second day in a row, further decoupling from the stock market after a report showing U.S. consumer prices rose last month at their fastest pace since 2008.
The largest cryptocurrency is seen by many digital-asset investors as a hedge against inflation, and so the price reaction led to some head-scratching among Wall Street analysts. That’s been the case for the past couple months as the U.S. Bureau of Labor’s consumer price index (CPI) accelerated, with the price of bitcoin tumbling to about $32,800 now from an all-time high near $65,000 in April.
“Interesting that as CPI inflation has climbed from +1.4% y/y in January to 5.4% in June, bitcoin has essentially been cut in half,” Liz Ann Sonders, chief investment strategist at Charles Schwab, tweeted.
- S&P 500: 4369.22, -0.35%
- Gold: $1809.1, +0.13%
- 10-year Treasury yield closed at 1.41%, compared with 1.369% on Monday
Looking at the larger macroeconomic picture puts bitcoin’s price action into perspective: Bitcoin prices quadrupled last year as the U.S. Federal Reserve pumped trillions of freshly printed dollars into financial markets, nearly doubling in one year the amount of money it had created over the prior 107 years.
But bitcoin’s market reaction to faster-than-expected inflation also might reflect the topsy-turvy nature of financial markets, where the data points matter far less than what the Federal Reserve might do in response to them.
In this case, many economists say that the pace of inflation still appears to be “transitory,” as Fed Chairman Jerome Powell has put it.
“Fed officials are still telling everyone that `inflation is transitory,’ while they pour an unjustifiable $120 billion into the market each month,” Mati Greenspan, founder of the cryptocurrency analysis firm Quantum Economics, wrote Tuesday.
But there’s an increased chance that some of those higher prices might last longer and thus push the U.S. central bank to curtail its easy-money policies sooner than previously expected. That might help explain bitcoin’s weakness – if a “looser-for-longer” monetary policy starts to look less likely.
“A hot inflation report unnerved some investors as expectations grow that the Fed will have to acknowledge that higher inflation will stick around,” Edward Moya, senior market analyst for the brokerage Oanda, wrote in a daily note. “This inflation shock might not be a strong enough catalyst to break bitcoin’s recent trading range.”
Bitcoin’s range gets tighter
Bitcoin is in its eighth week stuck in a range of between roughly $30,000 and $40,000, and the sideways trading is reflected in the anemic cryptocurrency trading volumes of late.
The fast-moving gains witnessed earlier this year are nowhere to be seen at the moment. According to Alternative.me’s “Crypto Fear & Greed Index,” cryptocurrency markets are currently gripped by “extreme fear,” as noted Tuesday in a report by the Norwegian firm…