Bitcoin’s 5% Drop: CPI Report Fears or Market Correction? Weighing the Impact on Crypto

Sunset-lit financial cityscape, stormy clouds, looming CPI report, Bitcoin and Ethereum coins, a bear and a bull dueling, abstract recession waves, a life raft with safe-haven Bitcoin, global map showing central banks raising rates, hopeful glimmer of light through storm.

Bitcoin experienced a sharp decline on Monday, losing more than 5% of its value in a 24-hour period, as traders offloaded “risk assets” ahead of the Consumer Price Index (CPI) report for April. The leading cryptocurrency by market cap was trading at $27,408 at the time of writing, according to CoinGecko. A mere month ago, Bitcoin saw a 10-month high when it surpassed $30,000, but it has now wiped out those gains, with a 6.7% drop in the past week.

This downward trend has affected the rest of the market as well, with Ethereum, the second-largest cryptocurrency, dropping more than 5% in the past day to $1,826. Other major cryptocurrencies experienced similar declines: Dogecoin plunged by 7% in 24 hours to $0.07, while Polygon sustained an 8.6% hit and was trading at $0.89.

The CPI report, scheduled for release on Wednesday, is closely monitored by investors to assess the Federal Reserve’s progress in curbing inflation. This index tracks price fluctuations across a diverse range of goods and services. Historically, investors have sold “risk assets” – investments prone to volatile price movements – whenever the Fed has aggressively raised interest rates to control inflation.

Bitcoin has often been associated with the U.S. equity market, particularly tech stocks, and its price has dipped whenever America’s central bank has tightened monetary policies. Although several investors have anticipated Bitcoin’s decoupling from stocks on multiple occasions, this separation has yet to materialize.

However, this year’s banking crisis and concerns about an impending recession have led some investors to view the largest and oldest cryptocurrency as a safe haven, according to experts. As a result, Bitcoin’s value has increased significantly since the beginning of the year when it was trading at just $16,615.

Global asset manager BlackRock stated on Monday that riskier assets could continue to face challenges this year as central banks worldwide continue to raise interest rates in their fight against soaring inflation. Potential risks are abundant, but faith in cryptocurrencies like Bitcoin as a safeguard amidst economic turmoil seems to be a steady narrative among investors and experts alike.

Source: Decrypt

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