Early Investing

Crypto and Public Markets Take Inflation in Stride

Crypto and Public Markets Take Inflation in Stride
By Vin Narayanan
Date August 12, 2022

Crypto Market Musings

Finally, some good news. Bitcoin is trading around $24,000 and is up by more than 4% over the last seven days. Ethereum is trading above $1,880 and is up more than 10%. 

This week’s inflation data triggered the rally. The consumer price index (CPI) was up 8.5% year-over-year last month — down from the 9.1% year-over-year in June. There was no change to the CPI on a month-to-month basis between June and July.

Economists were expecting inflation to come in at 8.7% year-over-year and 0.2% month-to-month. So the economy “beat expectations.” The stock markets rallied on the news, with the S&P 500 gaining 2.13% to close at its highest level since early May. And the crypto markets — which have been tightly correlated with the stock markets for some time now — joined the party. 

One of these days, we’re going to look back at this time period and wonder why we didn’t pay more attention to BlackRock announcing a private trust that gives clients access to bitcoin, BlackRock partnering with Coinbase and Schwab releasing a funky “crypto themed” ETF (basically stocks of companies that are into crypto). But today is not one of those days.

What Vin Is Thinking About

The markets responded positively to the inflation news. But I’m a bit more skeptical. Core inflation (which excludes food and energy prices) increased by 0.3% on a monthly basis. That means prices are still going up. And I get that economists expected a 0.5% increase. But at this point, pain is pain. It’s like the weather forecast in Las Vegas that tells you it will be 115 degrees tomorrow, but it will feel like 120 degrees (yes, that actually happens). Prices for consumer goods are going in the wrong direction. And despite fuel costs dropping significantly, inflation didn’t budge on a monthly basis. That’s not good.

Food prices are increasing at their fastest pace since 1979. And shelter costs are up 5.7% from last year.

I don’t think the economy — or the markets — have bottomed out yet. Hopefully, the next set of inflation data will clarify things.

And Finally…

More good news! The Ethereum Merge seems to be going well. The shift from the proof of work protocol to the proof of stake protocol was originally scheduled to take place on September 19. But the merging of test nets has gone well. As a result, the Merge could even happen four days early on September 15. That’s good news for Ethereum and Ethereum projects. Investors should look for ethereum to outperform the broader crypto markets for the next few weeks.

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