Red Hot US Inflation Brings Strong Volatility to Bitcoin and Crypto

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Crypto market turned volatile following the US CPI inflation data on Wednesday. Owing to four-decade high inflation the Fed is likely to initiate aggressive QT measures which can force investors to move away from risk-ON assets like crypto.

On Wednesday, July 14, the US unveiled its CPI inflation data for the month of June 2022 which stood at a staggering 9.1%. The inflation numbers were higher than the Street estimates raising concerns of an impending recession. The news of the inflation data brought strong volatility to the crypto space: Bitcoin (BTC) which was trading above $20,000 earlier on Wednesday, dropped all the way to $19,000. Bitcoin continues to trade under $20,000 as of press time.

Bitcoin and Other Coins amid Inflation Data News

Along with Bitcoin, the broader crypto market is exhibiting volatility with a market cap moving back and forth of $900 billion. The world’s second-largest crypto Ether (ETH) has managed to hold above $1,000 so far.

All other altcoins have been trading almost flat in the last 24 hours. Polygon’s MATIC is the only crypto outperforming currently.

The MATIC price has shot up by 15% in the last 24 hours going past 60 cents. On the weekly chart, MATIC has gained more than 20% outperforming the broader market.

The red-hot inflation data will force the Fed to swing back into action. The Fed is likely to announce a 75 basis points rise in the interest rate. Some market analysts also expect the Fed to announce a 100 basis points rate hike owing to the soaring inflation. In a bid to crush the soaring inflation, the Bank of Canada already announced a 100 basis points rate hike on Wednesday.

Crypto Winter of 2022

The crypto market correction of 2022 has been brutal with Bitcoin and several of the altcoins correcting 70-90% in the last eight months. Some market analysts believe that the crypto winter of 2022 is quite different from the previous ones of 2018.

The current crash in the crypto space has been largely driven by macro factors and rampant inflation. Back in 2017, the fallout of the ICOs was a major reason behind the crypto market crash. Clara Medalie, research director at crypto data firm Kaiko, told CNBC:

“As markets started selling off, it became clear that many large entities were not prepared for the rapid reversal”.

On the other hand, institutional players have been building highly leveraged positions over the last year. This wasn’t the case in 2018 when institutional participation was itself very low.

Due to the high leverage positions in the DeFi and CeFi space, a large number of crypto firms have gone insolvent this year. Martin Green, CEO of quant trading firm Cambrian Asset Management said that “there was a lot of unsecured or undercollateralized lending as credit risks and counterparty risks were not assessed with vigilance. When market prices declined in Q2 of this year, funds, lenders and others became forced sellers because of margins calls.”

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Bhushan Akolkar

Bhushan is a FinTech enthusiast and holds a good flair in understanding financial markets. His interest in economics and finance draw his attention towards the new emerging Blockchain Technology and Cryptocurrency markets. He is continuously in a learning process and keeps himself motivated by sharing his acquired knowledge. In free time he reads thriller fictions novels and sometimes explore his culinary skills.