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On Tuesday, the cryptocurrency market witnessed a downturn amidst a broader sell-off, a reaction triggered by a higher-than-expected Consumer Price Index (CPI) reading.
Bitcoin, the leading cryptocurrency, experienced a 0.8% decrease, with its value dropping to $49,658.57, as reported by Coin Metrics. Earlier in the day, it reached as low as $48,372.89. Notably, just the day prior, Bitcoin had surpassed the $50,000 mark, reaching its highest level in over two years.
Influence of CPI Data on the Cryptocurrency Market
The decline in cryptocurrencies on Tuesday coincided with the release of a report by the U.S. Bureau of Labor Statistics, which revealed a larger-than-anticipated increase in the January consumer price index.
This unexpected inflation data led to a surge in yields, particularly the benchmark 10-year U.S. Treasury yield, which rose by more than 10 basis points, subsequently exerting pressure on risk assets, including cryptocurrencies.
Jurrien Timmer, Director of Global Macro at Fidelity Investments, highlighted the correlation between Bitcoin's price movement and monetary policy, referring to Bitcoin as an "aspirational store of value." He suggested that the hotter-than-expected CPI report indicates a delay in the Federal Reserve's policy pivot, implying prolonged higher nominal and real interest rates. This, in theory, diminishes the urgency for investors to hold onto a store of value like Bitcoin.
Impact Across the Cryptocurrency Market
In addition to Bitcoin's decline, other cryptocurrency-related entities also experienced losses.
According to CNBC, crypto exchange Coinbase saw a 4.7% decrease, while Bitcoin proxy Microstrategy lost 4.39%. Although miners like CleanSpark and Iris Energy trimmed earlier losses, they remained under pressure. Marathon Digital slid 5.72%, and Riot Platforms retreated by 3.02%.
Elsewhere in the cryptocurrency market, Ether remained relatively stable, while Solana's SOL token witnessed a modest gain of 1.79%.
According to Coindesk, Yuya Hasegawa, a crypto market analyst at Japanese bitcoin exchange Bitbank, attributed Ether's recent rally to the anticipation surrounding Ethereum's upcoming tech upgrade in March, known as Dencun, as well as renewed interest in non-fungible tokens (NFTs) within the crypto community.
Hasegawa also predicted a potential minor correction in Bitcoin's price within the coming week but maintained optimism about its upward trend, citing increased demand through exchange-traded funds (ETFs) and positive technical sentiment.
Photo: Harrison Kugler / Unsplash
