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BTC Grayscale Research Director pointed out: U.S. inflation data may put short-term pressure on the crypto market.
Grayscale Research Director Zach Pandl pointed out that the latest U.S. inflation report may become a temporary headwind for the cryptocurrency market. As actual data was stronger than expected, the market once again speculated that the Federal Reserve would raise interest rates again.
Inflation data raises interest rate hikes
August consumer price index (CPI) data showed that overall inflation rose 0.4% month-on-month, with an annualized rate of 3.4%. The reading was higher than economists 'expectations and sparked new concerns about future monetary policy tightening. At the same time, core inflation, which excludes food and energy prices, fell to 2.4% year-on-year, in line with forecasts and hit its lowest level since 2021. The divergence between headline inflation and core inflation data has created new uncertainty for investors closely watching the Fed's next move.
Zach Pandl described this set of data as a potential short-term challenge for digital assets, arguing that the possibility of raising interest rates has increased after the data is released. He described this situation as a "speed bump" scenario for the crypto market, where a high core CPI means a higher probability of the Federal Reserve raising interest rates.
Analysts expect limited downside in crypto assets
Despite the possibility of a rate hike, Pandl said he does not expect a long-term or deep decline in cryptocurrency prices. He believes any weak performance will be moderate, which could provide an opportunity for investors who failed to enter during the sharp rebound in August to build new positions.
Economist Robin Brooks also pointed out that strong inflation data has posed challenges to the central bank's policy path. Brooks believes that given the higher-than-expected CPI data, another rate hike is more likely. After the CPI data was released, financial markets gave the Fed a probability of raising interest rates of about 85%, while Jim Bianco, founder of Bianco Research, estimated that the probability was close to 90%.
Core inflation brings a silver lining
While tightening policies typically put pressure on Bitcoin by increasing borrowing costs, not all analysts view this report as a bearish signal. Core CPI fell to 2.4% year-on-year, signaling a step towards the Fed's long-term inflation target of 2%. Analyst James E. Thorne observed that current readings support the view that U.S. inflation is gradually declining. Geiger Capital also echoed that core inflation has reached its lowest point since 2021.
In an environment where a single Federal Reserve decision or an unexpected altcoin listing can quickly change market dynamics, investors are looking for more efficient ways to gain market intelligence. Many people are starting to adopt privacy-conscious apps that integrate real-time charts, instant price reminders, currency-specific news and macroeconomic data on the same screen without having to register for an account.
According to CoinGecko data, Bitcoin is currently trading at US$78,772.
