Bitcoin, Ethereum Drop 5% in an Hour Amid Hot US Inflation Figures

The leading cryptocurrencies in Bitcoin and Ethereum shed several points on Tuesday morning following the latest Consumer Price Index (CPI) print.

Shortly after the CPI numbers were released, both Bitcoin and Ethereum dropped hefty gains earned over the week.

Today, the index revealed an 8.3% increase in the basket of goods it represents compared to August last month. This represents a 0.1% increase since the July reading, beating expectations and suggesting that inflation may be more stubborn to beat back than expected.

Bitcoin, the largest cryptocurrency by market capitalization, is now trading hands at around $21,450 after having fallen by over 5% in the last hour. It remains up around 8% over the last week, however.

Ethereum is now down over 6% over the past hour and is currently trading at around $1,625, according to data from CoinMarketCap.

Traditional markets in the Nasdaq 100 and the S&P 500 also dropped 2.7% and 2%, respectively.

What is the CPI?

Each month, the Consumer Price Index measures the cost of various goods and services, such as milk and used cars. Economists use these figures as a proxy for identifying inflation. Of late, the CPI numbers have revealed some of the highest inflation in the United States in the past 40 years. The most recent August numbers were no exception, either.

The increase, though minor, will likely give the Federal Reserve the green light to continue hiking interest rates, the central bank’s key tool for cooling the economy. As the Fed raises rates, it becomes more expensive to borrow money, which can lead to fewer investments, slowed hiring, and ultimately less spending.

Raising rates also affects financial markets, crypto included.

Today’s CPI report is the final reading before the Fed meets again on September 20. It’s expected that chairman Jerome Powell will again raise rates by another .75 basis points.