U.S. Inflation Data Presents Another Test For Bitcoin This Week

Ambar Warrick
February 23, 2022
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CoinGape has covered the cryptocurrency industry since 2017, aiming to provide informative insights to our readers. Our journal analysts bring years of experience in market analysis and blockchain technology to ensure factual accuracy and balanced reporting. By following our Editorial Policy, our writers verify every source, fact-check each story, rely on reputable sources, and attribute quotes and media correctly. We also follow a rigorous Review Methodology when evaluating exchanges and tools. From emerging blockchain projects and coin launches to industry events and technical developments, we cover all facets of the digital asset space with unwavering commitment to timely, relevant information.
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With crypto markets already under pressure from Russia-Ukraine tensions, upcoming inflation data from the United States this week is set to add another layer of uncertainty. The Personal Consumption Expenditures Index (PCE) for January is due this Friday. What makes the data so important, and potentially market-moving, is that it is the preferred inflation gauge of the Federal Reserve.

With sentiment indicating “extreme fear,” a strong inflation reading could further unsettle markets already hammered by simmering Russia-Ukraine tensions.

Rising inflation also creates more space for the Fed to raise interest rates, which will reduce liquidity in markets and dent investment into risk-driven assets like stocks, and more recently, crypto.

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Crypto moving in line with stock markets

As institutional interest in cryptos grew through 2021, the market has traded more in line with stocks- specifically technology stocks. For example, Bitcoin is down about 18% this year, compared to a near 16% decline in the tech-heavy Nasdaq index.

On Feb. 10, a stronger-than-expected U.S. consumer price reading saw crypto market capitalization slump by nearly $80 billion in thirty minutes.  The market then doubled its losses over the next two days.

Crypto's reaction to U.S. inflation

The recent volatility has also cost crypto, specifically Bitcoin, its status as a potential hedge against inflation. The token has also lagged gold by a wide margin this year.

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Inflation risks this week?

The PCE index is forecast to grow by 6% in January- its fastest rise in about 40 years, Yahoo finance reported, citing data from Bloomberg. An in-line, or even stronger-than expected reading is likely to rattle markets.

The crypto market has already lost more than $100 billion this month on jitters over Russia. While it may be showing early signs of a recovery now, it is still vulnerable to any further shocks.

Twitter user @Trader4Lyf noted

I remain bearish of traditional markets, and the “risk off” sentiment in that space will likewise affect #Crypto

Tech stocks for example look bad But like March 2020’s mini crash we decoupled in a few weeks, and so I can still be bullish for this year

 

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Investment disclaimer: The content reflects the author’s personal views and current market conditions. Please conduct your own research before investing in cryptocurrencies, as neither the author nor the publication is responsible for any financial losses.
Ad Disclosure: This site may feature sponsored content and affiliate links. All advertisements are clearly labeled, and ad partners have no influence over our editorial content.

Why Trust CoinGape

CoinGape has covered the cryptocurrency industry since 2017, aiming to provide informative insights Read more…to our readers. Our journal analysts bring years of experience in market analysis and blockchain technology to ensure factual accuracy and balanced reporting. By following our Editorial Policy, our writers verify every source, fact-check each story, rely on reputable sources, and attribute quotes and media correctly. We also follow a rigorous Review Methodology when evaluating exchanges and tools. From emerging blockchain projects and coin launches to industry events and technical developments, we cover all facets of the digital asset space with unwavering commitment to timely, relevant information.

About Author
About Author
With more than five years of experience covering global financial markets, Ambar intends to leverage this knowledge towards the rapidly expanding world of crypto and DeFi. His interest lies chiefly in finding how geopolitical developments can impact crypto markets, and what that could mean for your bitcoin holdings. When he isn't trawling through the web for the latest breaking news, you can find him playing videogames or watching Seinfeld reruns. You can reach him at [email protected]
Investment disclaimer: The content reflects the author’s personal views and current market conditions. Please conduct your own research before investing in cryptocurrencies, as neither the author nor the publication is responsible for any financial losses.
Ad Disclosure: This site may feature sponsored content and affiliate links. All advertisements are clearly labeled, and ad partners have no influence over our editorial content.