The bitcoin price has dropped to around $27,000 per bitcoin, its lowest price since late 2020 while ethereum has crashed to under $1,500 per ether. Smaller cryptocurrencies are performing even worse, with BNB
The latest bitcoin and crypto sell-off was sparked by fears the Federal Reserve could put its “foot on the gas” in its fight to drive down inflation after the latest U.S. consumer price index reading showed the economy remains red-hot.
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“The Federal Reserve is backed into a corner now,” crypto investor and influencer Anthony Pompliano wrote in his newsletter after the latest inflation data was released.
On Friday, data showed prices in the U.S. rose faster than expected in May, rising to 8.6% after easing in April, fueled by rising energy and food costs and pushing inflation to its highest rate since 1981.
“Inflation hasn’t subsided even though the Fed has been increasing interest rates and conducting quantitative tightening. They don’t have many more options other than to simply put their foot on the gas. The Fed could try to accelerate the interest rate increases, both in speed and severity, along with accelerate quantitative tightening. I’m not sure that they will do it, but there aren’t many other avenues to pursue.”
Next week, the Fed is expected to raise its interest rate to 1.25%-1.50%, after a similar move last month. A Reuters survey found economists are forecasting a further 50 basis point rate hike in July.
“[Friday’s] inflation report is the last big release before the Fed meeting next Wednesday,” Alex Kuptsikevich, FxPro senior market analyst, wrote in an emailed note. “A renewal of inflation to 40-year highs will surely attract the public’s attention at the weekend and will pressure the Fed. Potentially, such high reading could trigger a tougher [Fed] stance in the accompanying commentary.”
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The bitcoin, ethereum and crypto market has been falling steadily over the last six months, crashing along with the stock market as the Federal Reserve and other central banks around the world hike interest rates and begin to taper pandemic-era stimulus measures. The Fed this month started to the long process of shrinking its swollen $9 trillion balance sheet, known as quantitative tightening.
“Bitcoin’s ongoing correlation with macro-forces-roiled stock markets has snuffed optimism and sparked frustration at a time when crypto seems to be missing the perfect opportunity to demonstrate its forgotten role as a hedge against inflation,” Rich Blake, financial consultant at crypto platform Uphold, wrote in emailed comments.
“As monetary tightening accelerates around the world, stocks, in the short run, are still vulnerable to lower lows, noting telltale signs of a cyclical bear market.”