Elevated Inflation Pressures Assets
|By Sam Blumenfeld|
While most economists predicted a slight decline, consumer prices increased 8.3% higher year over year in August.
The news sent shockwaves throughout both crypto and traditional equity markets. The Nasdaq and S&P 500 had their worst day since June 2020, and Federal Reserve fund futures quickly priced in the certainty of at least a 75-basis-point rate hike after the Federal Open Market Committee meeting next week.
The latest inflation data pours gas on the fire after Jerome Powell's recent speech in Jackson Hole, when he promised to tighten monetary policy until inflation returns to its 2% target. Translated: More rate hikes are coming, starting with the Sept. 21 FOMC meeting.
Crypto sold off in response to tighter policy expectations, but prices are trying to stabilize today as the market looks forward to the Ethereum (ETH, Tech/Adoption Grade "A") Merge, which is just about eight hours away.
Bitcoin slipped under the critical support level of $20,000, and at the time of writing, it's down marginally on the day. This will be an important psychological level to watch because it's just above the 2017 bull market peak.
BTC crossed below its 21-day moving average of $20,400 during the marketwide pullback, but it's challenging that level during today's trading.
Here's Bitcoin's price in U.S. dollars via Coinbase Global (COIN):
In comparison, at the time of writing, Ethereum is up 0.38% today, sitting just below the $1,600 level. Despite recent volatility, the asset has mostly held its ground as it moves closer to the Merge, trading at roughly the same level it was a week ago.
The second largest cryptocurrency by market capitalization has performed similarly to Bitcoin over the past month, with both assets tracking 17% losses. However, ETH's three-month performance has outclassed the market leader's, posting a 30% gain compared to the latter's 10% loss.
Ethereum's Merge will be a critical point for the asset, paving the way for significant inflows from institutions with strict environmental, social and governance requirements.
The shift to proof-of-stake consensus is expected to reduce Ethereum's carbon footprint by 99%, which would help it overcome one of its largest roadblocks toward rapidly expanding adoption. It will also allow holders to stake for yield.
On the other hand, the Merge may not fully address transaction speed, fees or scalability, and could have bugs at the beginning of the transition.
In response, the Merge's top priority is ensuring network security.
The lack of a significant run-up prior to the Merge could help the asset avoid "buy the rumor, sell the news"-type price action. But for now, the asset is showing resilience amid significant macroeconomic headwinds.
Ethereum briefly overtook its 21-day moving average at the beginning of today's trading session, but it quickly fell below it as the market pulled back a bit. It would have to jump back above $1,600 to retake it.
Here's Ethereum's price in U.S. dollars via Coinbase:
Notable News, Notes & Tweets
- Apollo Capital CIO Henrik Andersson sees institutions taking a more aggressive look into crypto, citing "career risk" for leaders who don't.
- Private equity heavyweight KKR is tokenizing its Health Care Strategic Growth Fund on the Avalanche blockchain. KKR held $471 billion in assets under management at the end of last year.
- Emerging markets are leading the charge for global crypto adoption, with lower-middle income countries taking up a large portion of the top 20.
Yesterday's elevated inflation data was mostly unexpected, and it will likely put the idea of a Fed pivot to bed for now. Notably, the increase in consumer prices happened in spite of lower gasoline prices.
With the U.S. strategic petroleum reserve depleted to its lowest level since 1984, oil could continue weighing on consumer prices once the government stops releasing inventory.
Regardless, the future of crypto is bullish despite the current stage of the market cycle and difficult macroeconomic environment.
Adoption is consistently trending higher, and institutions are likely to continue piling into the crypto space and utilizing blockchain technologies. As the next bull run takes off, institutions should light the fire under prices.
Stick with us, and we'll keep you up to date on the news from the crypto markets.