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Bitcoin Dips After Key Inflation Indicator Rattles Market

February 27, 2023 World Blockchain

The entire crypto market is in the red nowadays as investors shift risk once again.

Bitcoin dropped sharply on Friday—dragging the rest of the digital asset market with it—after key inflation data came in and seemingly rattled investors.

The biggest cryptocurrency is currently down 3% in 24 hours, trading for $23,070, CoinGecko data shows. Just last week, it broke above $25,000 per coin for the first time in eight months.

Most other cryptocurrencies have also taken a hit: Ethereum has shed 3.1% in the past day, trading hands for $$1,593; Dogecoin is now priced at $0.082—a 3.3% 24-hour drop.

Cryptocurrency is following the U.S. equities market today as it typically does. Investors shifted “risk-on” assets like stocks and digital assets after key inflation data came in on Friday and showed that more interest rate hikes by the U.S. Federal Reserve could be coming.

CoinShares Head of Research James Butterfill told Decrypt that the sudden dip in crypto prices was the “direct result of macro data from the U.S.,” adding that “investors expect a more hawkish Fed.”

Friday’s report showed that inflation in the world’s biggest economy increased: the personal consumption expenditures price index rose 5.4% from last year and the core metric was up 4.7%.

Equities investors reacted by selling: the Dow Jones Industrial Average fell by 390 points, or 1.2%, while the S&P 500 dipped 1.6% and Nasdaq Composite by 2%.

Bitcoin is doing nothing new: the volatile asset has followed other volatile assets like tech stocks whenever there are signs the Fed might remain hawkish with its aggressive monetary policy.

The Fed started raising interest rates last year in an urgent attempt to tame 40-year high inflation in the U.S. It hiked rates by 75 basis points four times, and then slowed down by upping them by 50 basis points.

Most recently, the central bank has slowed down to 25 basis points—but Fed Chairman Jerome Powell has repeatedly said that the road ahead to get inflation down will be bumpy.

Investors tend to avoid “risk” like Bitcoin and instead plug money into “safe-haven” assets like the U.S. dollar—which is up today: the dollar index jumped 0.5% Friday, its highest in nearly two months.

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