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BTC Grayscale Research Director Zah Pandl: The latest U.S. inflation data may temporarily hinder the cryptocurrency market
Grayscale Research Director Zach Pandl said that the latest U.S. inflation report may temporarily hinder the development of the cryptocurrency market, and pointed out that the possibility of the Federal Reserve issuing a policy response is increasing.
Inflation data pushes up Fed interest rate hike expectations
The consumer price index (CPI) for August showed that overall inflation rose 0.4% month-on-month and remained at an annualized rate of 3.4%. At the same time, underlying price pressures continue to ease, with core inflation at an annualized rate of 2.4%, the lowest level since 2021, in line with economists 'forecasts.
However, Pandel described this combination of overall inflation resilience with high core prices as a "speed bump" that digital assets may encounter. He explained that such data increases the probability that the Fed will choose to raise interest rates further.
A higher core CPI means that the possibility of the Federal Reserve raising interest rates is quite high. This is a "roadblock" scenario for cryptocurrencies. The market responded quickly to the report, with implied market probabilities and analyst comments indicating strong expectations for tighter monetary policy. Some traders set the probability of the Fed raising interest rates at 85% to 90% after the data was released.
Economist Robin Brooks believes this inflation reading is a negative development for the central bank, warning that it could force policymakers to raise interest rates again.
Impact on the cryptocurrency market and investor sentiment
Although the risk of another interest rate hike has increased, Pander does not believe that a severe decline in cryptocurrencies will occur if policies are tightened. He expected the weakness in digital asset prices to be limited and suggested that investors who missed out on the sharp gains in August may see another opportunity to enter the market.
In my opinion, the pullback will be shallow, which will create opportunities for entrants to seize the previously missed August price increase.
The Federal Reserve's monetary policy decisions can directly affect borrowing costs in traditional and digital asset markets. Higher interest rates tend to reduce liquidity, which is often seen as a negative factor for Bitcoin and other major cryptocurrencies.
Jim Bianco, founder of Bianco Research, said traders set the probability of an upcoming rate hike at about 90%, highlighting the market's sensitivity to inflation dynamics and central bank policies.
According to CoinGecko, the most recent transaction price of Bitcoin was US$78,772.
Outlook: Differing views on inflation trends
Despite immediate concerns, some analysts point out that inflationary pressures are on a downward trend. Economist and strategist James E. Thorne Thorne believes that the annualized rate of core inflation of 2.4% suggests that price growth will decline in the long term.
Geiger Capital emphasized that core inflation is at its lowest level since 2021, indicating steady progress towards the Fed's 2% target.
Despite this, the near-term policy outlook remains uncertain, and future actions by the central bank may affect traditional and cryptocurrency markets.
Glossary and key data
Terms explanation: Grayscale is a leading U.S. digital asset management company known for its cryptocurrency investment products, including the Grayscale Bitcoin Trust Fund, which provides traditional investors with exposure to the digital currency market.
