Bitcoin (BTC) fell on Friday after US CPI data showed that inflation was far from going down.
Bitcoin (BTC) dropped 1.5 percent in the minutes following the reading, which revealed that the US consumer price index (CPI) increased in May, contrary to expectations for a contraction.
According to the Department of Labor, the CPI increased by 8.6 percent year on year in May, compared to an 8.3 percent increase in April.
Markets were expecting an 8.1 percent reading.
Bitcoin is now trading below $30,000, with the potential for further decline. In the worst-case scenario, the coin could drop as low as $15,000 in the short term.
High inflation in the United States now suggests that the Federal Reserve will raise interest rates more aggressively, implying further declines in risk-sensitive markets.
Prices rose across the board, with housing, fuel, and food contributing the most to inflation. The data reflects both the knock-on effects of the Russia-Ukraine war and the last two years of easy monetary policy as a result of the COVID-19 pandemic.
It now follows that the Fed will have to raise rates even further to combat price inflation. According to CME Group data, 95.7 percent of investors expect the Fed to raise interest rates by 125 to 150 basis points during its meeting next week.
In May, the Fed raised interest rates by 50 basis points. Even this caused BTC to fall by more than 10%. With rising inflation and interest rates, the US economy may enter a recession, implying that BTC and the crypto market will face additional difficulties.
The inflation engine is running steaming hot and there is still plenty more to come… Traders and investors are concerned as recession odds are only increasing with every day passing.
Naeem Aslam, Chief Market Analyst at Avatrade
No Respite For Bitcoin, Crypto
Given BTC’s close association with US technology stocks, the coin appears to be in for more pain in the coming days. Rising interest rates and high Treasury yields are bad for tech stocks, and thus for Bitcoin.
Weakness in BTC is expected to spread throughout the crypto market. Following the inflation reading, most altcoins went negative for the day, mirroring BTC losses.
