Bitcoin tumbles by 11% on August CPI data

Total cryptocurrency market capitalisation sinks by 10%

Winklevoss maintains that Bitcoin is still an inflation hedge - Photo:Shutterstock

Disappointing inflation figures from the United States Bureau of Labor Statistic helped push down the capitalisation of the total cryptocurrency market by more than 10% in less than 24 hours, as inflation concerns weighed on investor sentiment.

Bitcoin in particular sank by as much as 11.4%, from $22,719 to a low of $20.133, losing almost $50bn in market capitalisation. 

According to CoinMarketCap, the total cryptocurrency market capitalisation fell from $1.076trn at 13:00 to a low of $941bn overnight. The crypto slump mirrored a sell-off in equities in which the Dow Jones, Nasdaq and S&P 500 closed down by 3.7%, 5% and 4.3%, respectively. 

US inflation data disappoints

Both routs were triggered in large part by disappointing inflation statistics from the United States Bureau of Labor Statistics. Publishing its monthly Consumer Price Index (CPI), the bureau said that prices were 8.3% higher last month than in August 2021. 

This represented a drop from the 8.5% year-on-year rate recorded in July and the 9.1% reported in June, the highest rate in four decades. The decline has been attributed primarily to petrol prices, which have fallen for 13 consecutive weeks. Air travel and used car prices also fell. 

Despite this news, investors and traders responded with alarm to marked increases in the cost of other goods. The price of food experienced its largest 12-month increase since 1979, rising by 11.4%. 

Furthermore, excluding energy and food costs, the year-on-year rise in the CPI stood at 6.3%, an acceleration from the 6.1% reported in July. 

An inflation hedge? 

Responding to the latest CPI figures and the subsequent activity in the cryptocurrency market, Gemini co-founder Tyler Winklevoss said: “Bitcoin should be up today. Its properties dictate that it should be inversely correlated to inflation. The fact that it is down shows just how early it is.”

Such comments may come as succour to ”true believers” in bitcoin. However, the crypto market turmoil of recent months has led to increased questioning of the cryptocurrency’s potential as a genuine hedge against inflation. 

The US Federal Reserve’s decision to raise interest rates in an effort to combat inflation has significantly contributed to the decline in cryptocurrency valuations in 2022. With less liquidity and market support, investors have moved out of more speculative investments.

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