Volatility has stuck the crypto market as the price of Bitcoin and Ethereum trend to the downside. The two largest cryptocurrencies are reacting negatively and with volatility to the U.S. Consumer Price Index (CPI) print, a metric used to measure inflation.
At the time of writing, Bitcoin (BTC) trades at $21,600 after a rejection north of $22,000 and a 4% loss in the last 24 hours. Ethereum (ETH) trades at $1,640 with a 6% loss over the same period after an aggressive crash from a major resistance area near $1,8000.
Both cryptocurrencies made a sudden move to the downside before the CPI print. Bitcoin quickly dropped to around $21,300 while Ethereum crashed to $1,640, the current price action is filling into those downside moves and hints at a potential further downside for the cryptocurrencies.
BTC’s price sudden move to the downside. Source: BTCUSD Tradingview
CPI Prints Beats Expectations, What Does It Mean For Bitcoin?
The U.S. CPI print came in at 8.3% with a core CPI rising to 6.3%, expectations for the former stood at 8.1%. In other words, the market was expecting inflation to be lower than today’s metrics with the hopes of relief in monetary policy from the U.S. Federal Reserve (Fed).
A low CPI combined with a slowdown in the economy might have provided the financial institution with room to relax on its interest rate hike. However, market participants are pricing in another 75 basis points (bps) hike for the upcoming Federal Open Market Committee (FOMC).
There is a small chance, according to recent market expectations, of a more aggressive from the Fed with a 100-bps hike in interest rates. The current monetary policy of the financial institution has broken havoc across global markets and risk-on assets, such as Bitcoin.
A 100 bps hike might push BTC’s price down into its yearly lows and beyond. Economist and crypto analyst Alex Krüger said the following about the CPI print and its implication on the U.S. Fed monetary policy:
Dreadful core CPI numbers. The 0.3% MoM miss should delay any Fed pivot by at least two months. Shorts should have it easy for a while, BTD can wait.
What Could Prevent Further Losses For Bitcoin And Ethereum
The coming days are bound to see more volatility as the CPI print, market expectations about a hawkish Fed, combined with the upcoming Ethereum “Merge”. The event that will complete this network transition to Proof-of-Stake (PoS), “The Merge” has caused a lot of hype across the crypto market.
A portion of market participants is expecting the Ethereum price to operate under a “buy the rumor, sell the news” event, others expect a breach of the resistance around $2,000, and others expect the price to continue dropping from current levels.
The latter has led to a spike in upside liquidity, as traders continue to short ETH and getting “squeezed” by larger investors. This could provide ETH with the ammunition to reclaim the area around $1,700, as the market heads into “The Merge”.