Market Wrap: US Inflation Data Roils Markets, Bitcoin and Ether Fall

Price Action

Risk markets declined across the board after inflation data disappointed investors on Tuesday.

August’s consumer price index (CPI) data showed an unexpectedly high 8.3% increase in prices versus expectations for an 8.1% increase. Core inflation, which excludes volatile food and energy prices, rose 6.3% versus forecasts of 6.1%

• Bitcoin (BTC) prices fell immediately on the news, declining 5% during the 12:00 UTC hour, when the inflation data was released. BTC was recently up more than 9%. Volume was robust, with trading volumes approximately seven times higher than its average 20 day volume. The largest cryptocurrency by market cap fell below $21,000.
• Ether (ETH) prices moved in concert with BTC, falling 6.27% during the 12:00 UTC hour, and more recently about 7.5%. The second-largest cryptocurrency by market cap also traded on higher-than-average volume. ETH’s decline comes ahead of its much-anticipated Merge upgrade from a proof-of-work to a proof-of-stake consensus mechanism, now expected to occur around Sept. 15.

Economic Calendar: Today’s inflation figures will get the bulk of attention across markets. The larger-than-expected inflation number sets up an aggressive interest rate hike during the Federal Open Market Committee’s (FOMC) next meeting

The CME FedWatch Tool, which is used to evaluate the probabilities of FOMC rate moves, now forecasts an 82% probability that rates will increase by 75 basis points (down from 91%), during the upcoming Fed meeting.

The 9% chance of a 50 basis point increase set Monday has gone to zero Tuesday. Markets now project an 18% chance of a 100 basis point increase.

U.S. Equities: Traditional equities markets were down, with the Dow Jones Industrial Average (DJIA) and S&P 500, down 3.9% and 4.3%, respectively. The tech-heavy Nasdaq composite declined 5.3% and is on track for its worst period since May 2020

Commodities: The price of crude oil fell 0.2% while that of natural gas increased 1.9%. Despite being viewed as a traditional safe haven asset, gold fell 1.5%. Copper prices declined 2.2%

The Dollar Index (DXY) increased 1.22%, maintaining its inverse relationship to BTC prices.

Altcoins were down. The Polygon blockchain’s MATIC declined 8% while Polkadot’s DOT and Avalanche’s AVAX fell 7% and 10%, respectively.

Latest Prices

● Bitcoin (BTC): $20,272 −9.5%

● Ether (ETH): $1,615 −6.4%

● CoinDesk Market Index (CMI): $1,019 −7.1%

● S&P 500 daily close: 3,932.69 −4.3%

● Gold: $1,712 per troy ounce −0.9%

● Ten-year Treasury yield daily close: 3.42% +0.06

Bitcoin, ether and gold prices are taken at approximately 4pm New York time. Bitcoin is the CoinDesk Bitcoin Price Index (XBX); Ether is the CoinDesk Ether Price Index (ETX); Gold is the COMEX spot price. Information about CoinDesk Indices can be found at coindesk.com/indices.

Technical Take

BTC and ETH markets all seeing red.

There’s little confusion around what occurred in crypto and traditional markets Tuesday. The 8.3% inflation figure disappointed investors across the board, the odds increased that the Federal Reserve will continue its hawkish pace of interest rate hikes and assets sold off as a result.

As highlighted in an earlier CoinDesk report, annual inflation slowed from July’s 8.5% reading but was less than expectations of 8.1%. Month over month, inflation figures disappointed as well, given the forecast of a 0.2% decline in prices as opposed to the 0.1% increase that occurred.

Over the past two weeks, Fed officials have reiterated their commitment to quell inflation, which stands near four-decade highs. They now have additional data to support their stance. How investors respond to Fed actions is an evolving theme that may continue to rock already volatile asset markets.

Investor expectations for a 75 basis point increase have remained consistently high and are likely to continue at that level until the FOMC meets Sept. 21, even if the possibility of a 100 basis point hike was floated Tuesday.

Both BTC and ETH’s hourly charts highlight the sharp sell-off during the 12:00 UTC hour. Both assets moved into oversold territory when using the Relative Strength Index (RSI) as a measuring stick for price momentum as well. A distinction between the two assets is the bid that ETH seemed to catch during the 15:00 UTC hour, which accelerated in subsequent hours.

In Monday’s Market Wrap the divergent catalysts for BTC and ETH were mentioned. Where BTC appears completely tied to macroeconomic news, ETH prices are also tied to this week’s Merge, which is expected to occur within the next 24-48 hours.

The pause and reversal of ETH prices shown below likely implies optimism ahead of the Merge, as traders see an opportunity to accumulate oversold ETH.

BTC prices paused their decline during the 17:00 UTC hour, but on what appears to be far less conviction than ETH’s reversal.

Altcoin Roundup

• Ethereum Proof-of-Work Fork Timing Posted: The Merge is a technological overhaul of the Ethereum blockchain that will shift its protocol from proof-of-work (PoW) to proof-of-stake (PoS). The PoW fork will occur 24 hours following the Merge, according to an @EthereumPoW Twitter thread. Read more here.
• Non-Fungible Token (NFT) Collection Doodles Raises $54M at $704M Valuation: The venture-capital firm of Reddit co-founder Alexis Ohanian led the funding round.Read more here.

Trending Posts

• Listen 🎧:Today’s "CoinDesk Markets Daily" podcast discusses the latest market movements and a look at how some are prepping for the Merge.
• Path Forward for Crypto Gets Tougher After US CPI Report Comes in Hot: It's becoming a game of Whac-A-Mole for the Federal Reserve to keep consumer prices from shooting up. That might mean an aggressive-for-longer stance on monetary policy, ostensibly a negative driver of prices for risky assets from stocks to cryptocurrencies.
• Crypto Exchange FTX Freezes Under Strain of CPI Volatility:More than $110 million was liquidated across crypto exchanges in the hour following the CPI print.
• Binance Sued in Italy Over Exchange Outages, Hearing This Week:A group of Italian and international investors brought a class-action lawsuit against Binance seeking damages for losses sustained during multiple exchange outages in 2021.
• Celsius CEO Mulls Crypto Custody Pivot After Lending Business Imploded, New York Times Reports:Celsius CEO Alex Mashinsky recently proposed revamping the failed crypto lending business as a digital asset custody firm, according to a New York Times report.

CoinDesk Market Index

Biggest Gainers

Asset Ticker Returns DACS Sector Terra Luna Classic LUNA +16.02% Smart Contract Platform Terra LUNA2 +4.43% Smart Contract Platform Kyber Network Crystal KNC +1.88% DeFi

Biggest Losers

Asset Ticker Returns DACS Sector The Graph GRT -16.44% Computing Hedera HBAR -13.4% Smart Contract Platform PlayDapp PLA -12.93% Culture & Entertainment

Sector classifications are provided via the Digital Asset Classification Standard (DACS), developed by CoinDesk Indices to provide a reliable, comprehensive and standardized classification system for digital assets. The CoinDesk Market Index (CMI) is a broad-based index designed to measure the market capitalization weighted performance of the digital asset market subject to minimum trading and exchange eligibility requirements.