Why is crypto down today? – Forbes Advisor – Forbes | Jewelry Dukan

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Cryptocurrency prices started falling again rapidly after the Bureau of Labor Statistics released its latest Consumer Price Index (CPI) numbers.

Although CPI declined from 8.5% yoy in July, August CPI came in at 8.3%, higher than 8.1% expected. The core CPI, which excludes food and energy prices, has risen 0.6% since July and is up 6.3% yoy.

Within an hour of the report’s publication, Ethereum (ETH) price slipped more than 7% and Bitcoin (BTC) fell about 4%. Other cryptos also crashed, with Solana (SOL) crashing around 6% and Cardano (ADA) crashing more than 7%.

This all corresponded roughly to the traditional markets. The Nasdaq Composite opened more than 3% lower. While the Dow Jones Industrial Average (DJIA) and the S&P 500 were both down around 2%.

The reason for all this negativity in the market is that the latest inflation numbers fueled investors’ fears that the Federal Reserve could be even closer to another sharp rate hike at its next official meeting, scheduled for September 20-21.

At the time of writing, the market is currently pricing in an 82% chance of a 75 basis point (bps) rate hike and a 18% chance of a 100 bps rate hike this month, according to CME Group’s FedWatch tool.

In August, Fed Chair Jerome Powell said a rate hike during the September meeting would depend on the data and the evolving outlook. “At some point, as monetary policy tightens further, it will probably be appropriate to slow the pace of hikes,” he said. However, given today’s core CPI numbers, it doesn’t look like that will be the case this month.

The cryptocurrency has plummeted in recent months along with rising inflation. Bitcoin has lost more than half of its value since the beginning of the year and is currently trading at around $21,300. ETH prices are down more than 57% year-to-date and are trading around $1,600. That’s well below Ethereum’s all-time high of nearly $4,900 in November 2021.

Selling pressure in 2022

Some cryptocurrency Investors have argued that bitcoin and other cryptocurrencies could be used as a hedge against inflation during the digital age. But cryptocurrency price action suggests that the market doesn’t seem to view these highly volatile assets as reliable stores of value during times of economic uncertainty.

With retail and institutional investors becoming increasingly interested in cryptocurrencies as an investment vehicle, crypto has started to move more in line with the broader markets. This is despite the fact that cryptocurrencies are generally a riskier asset class.

However, there is no reason to assume an inherent correlation between cryptocurrencies and stocks, even if investor interest in both tends to remain oscillating for now.

Today, investors are looking for protection from the negative economic impact of the Fed’s monetary tightening, and they simply aren’t looking for it in the cryptocurrency market.

What you need to know about crypto investing

Early investors in Bitcoin, Ethereum, and other cryptocurrencies made a lot of money. But the cryptocurrency market has a long history of extreme volatility, which investors don’t seek out in uncertain market conditions.

Bitcoin alone has experienced multiple deep pullbacks of more than 80% throughout its history, most recently in 2018.

Most cryptocurrencies are not tied to physical assets or intellectual property and do not generate cash flow or pay dividends or interest to investors. Instead, their prices are tied solely to supply and demand, making it difficult to assess their fundamental value, experts say.

Warren Buffett, CEO of Berkshire Hathaway and investment legend, once discussed bitcoin’s shortcomings at an annual investor meeting in Berkshire, telling investors he wouldn’t pay $25 for “all the bitcoins in the world.”

“I don’t know whether it will go up or down next year or in five or ten years. But I’m sure it doesn’t multiply, it doesn’t produce anything,” he said.

The volatility and correlation of Bitcoin and other cryptocurrencies with other risky assets may eventually decline. Still, the recent price action in the cryptocurrency market suggests that the bumpy ride for crypto investors could continue in the near future.

Should You Buy the Dip in Crypto?

Crypto investors should exercise extreme caution when buying the dip.

When asset prices are falling as fast as they have been in the crypto market today, the coin you have your eye on may look like a super deal. But old Wall Street pros have a rule of thumb that aptly describes such moments: “Never try to catch a falling knife.”

If you use your imagination, you should understand that catching a falling knife – aka “buying the dip” – almost always ends in pain. That’s not to say that savvy investors can’t make money quickly by trading heightened market volatility. But the point here is that large, rapid market moves can be unsettling for the typical retail investor.

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