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Crypto plunges to its worst over the weekend as US inflation hits a 40-year high

Crypto
TL;DR Breakdown
  • The broader crypto index falls to levels not seen since January 2021.
  • Ether comes off as the worst-performing asset, having dropped more than 50% in the previous 60 days.
  • The market is divided over the future of crypto.

Bitcoin and Ether suffered losses over the weekend as cryptocurrencies fell on Sunday amid a broader selloff by the crypto sector following data showing US inflation hitting a new 40-year high. Bitcoin’s weekly close looks to be approaching its lowest since early 2020, owing to lingering weakness exacerbated by limited weekend liquidity.

Crypto plunges further fuelled by the US inflation data

The crypto market has recently been subjected to a string of devastating lows. These crypto losses are now getting out of hand. Bitcoin and other cryptocurrencies plummeted on Sunday, with the asset class’ worth declining over the weekend following US economic data confirming persistent inflation pressures in May, suggesting the quickest inflation rate since December 1981.

The value of Ether plummeted as much as 6.4% to $1,424.40, its lowest point since March 2021. Bitcoin also fell to its lowest price since May 12, approaching $26,876.51. Almost all top cryptocurrencies tracked by Bloomberg were down Sunday, with Dogecoin and Avalanche shedding 9.4% and 13%, respectively.

However, these crypto-assets later showed signs of life, rallying off their lows as of 11:45 a.m. According to Bloomberg, Sunday in New York – and Ether even briefly made its way back to positive territory for the day.

Friday’s CPI data-pushed price gains even further above forecasts, putting to rest any expectations that rising costs may have hit a peak. Stocks tumbled as two-year Treasury yields rose to the highest since 2008.

Inflation accelerated to a 40-year high in May, suggesting that price pressures are entrenched in the economy. The Federal Reserve will most likely extend an aggressive series of interest rate hikes; as a result, adding to political difficulties for the White House and Democrats.

In a broad-based expansion, the consumer price index rose 8.6 percent from a year earlier, according to Labor Department figures released Friday. The typical inflation indicator increased 1%, exceeding all forecasts. Shelter, food, and gasoline were the most significant drivers of price increases.

The so-called core CPI, which removes the more volatile food and energy components, increased 0.6 percent from the previous month and 6% yearly, exceeding expectations.

The numbers dashed any notion that inflation had already hit its peak and was beginning to abate. With rising gasoline costs coupled with escalating food and shelter expenses, Americans’ living costs are becoming increasingly challenging to manage. This suggests the Fed will have to apply even more pressure on the economy. That raises the possibility of a recession, which some economists thought was already shaping out in a few months.

Is the crypto market nearing its end?

Bitcoin and other cryptocurrencies have been under a lot of pressure in recent months as the Federal Reserve raises interest rates and world leaders increase efforts to combat inflation. Tech stocks have also retreated as a result of this market volatility.

The inflation numbers are assisting in fueling the bearish trend. The crypto market will probably continue to exhibit this negativity throughout the next week, especially with the FOMC meeting on Wednesday. Investors are concerned that rising prices will prompt the Federal Reserve to take greater action against crypto as it does its two-day policy meeting on Tuesday. 

The current policy rate is between 0.75% and 1%. Equity losses happened to riskier assets, including crypto, over the weekend. During this year’s tumultuous crypto market, some crypto trading platforms, such as Coinbase Global Inc., have frozen hiring or announced layoffs. Gemini recently announced that 10% of positions would be cut.

According to some industry experts, crypto prices may fall significantly further. That said, certain digital-asset bulls argue that the present crisis might provide an opening. Some market participants noted that the selloffs might be a wake-up call to investors about the benefits of diversification. To others, however, it’s a clear sign that a large number of asset classes will suffer significant losses in the near future.

The current market is unique in that regard. When compared to other bear markets, Bitcoin has fallen by around 80% on average, with altcoins dropping by approximately 90%. If that holds, bitcoin prices may drop dramatically over the next month or two. The most unfortunate aspect is that the majority of investors have lost faith in the market, which means a fall is likely to be more severe.

Analysts have predicted that if Bitcoin breaks below the high $20,000s, it will gap downward rapidly, with levels like the 200-week moving average near $22,000 and even the 2017 high of $19,511.

The number of crypto liquidations is at an all-time high, according to Coinglass data. According to the firm’s records, there have been over $100 million in total long cryptocurrency sales for the third day in a row on Sunday, after $258 million on Friday and $290 million on Saturday.

The MVIS CryptoCompare Digital Assets 100 index, a market-cap-weighted indicator that tracks the performance of the top100 cryptocurrencies, dropped to its lowest level since January 2021.

While Bitcoin and the market, in general, are losing investors, Ethereum is dealing with its difficulties during the 11 percent plunge. ETH has been having problems since the start of the year, but this new low puts it roughly 70% below its all-time high in November. In the last 60 days alone, the major altcoin has plummeted by over 50%.

In the last 24 hours, the crypto market cap has dropped by 7% and may potentially hit $1 trillion for the first time since January 2021. Since it surpassed the $3 trillion milestones in November 2021, the market cap has lost about $2 trillion of its vault. The question of whether the cryptocurrency market will survive its many drawn-out bear markets is impossible to answer at this time. However, things do not appear promising.

Florence Muchai

Florence Muchai

Florence is a crypto enthusiast and writer who loves to travel. As a digital nomad, she explores the transformative power of blockchain technology. Her writing reflects the limitless possibilities for humanity to connect and grow.

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