Crypto Market Musings
The Consumer Price Index (CPI) for the month of September is finally here, and it’s not what economists and the Fed wanted. The CPI increased 8.2% from last September and increased 0.4% month to month. The financial markets tumbled right after yesterday morning’s news. Ethereum fell by more than 4%, reaching below $1,250. Bitcoin also reacted poorly, diving below $19,000. Fortunately, both the crypto and stock markets recovered later in the afternoon.
Let’s always keep in mind that the Fed is very committed to controlling inflation, so we might see another interest rate raise in late November. Investors should brace themselves for the upcoming months as CME Group projects a 98.7% chance of a 75 basis point interest rate hike.
What Yasmin Is Thinking About
One thing the CPI reflects is fuel prices. Although crypto and fuel prices are not directly correlated with each other, fuel still indirectly affects the crypto market. After all, oil plays a major role in powering the global economy.
As the Northern Hemisphere heads into the winter season, demand for oil and electricity will be higher. Although the September CPI shows a decline in the gas and energy indexes, this trend might not continue for October. After a few months of price reduction, U.S. gas prices have increased again by about $0.20 from last month to reach an average price of $3.90 a gallon. Over the past year, gas prices have increased due to many factors, including COVID-19 (which shifted the demand and supply of it), environmental, social and governance policies and the Russian-Ukraine war. And most recently, OPEC decided to reduce oil production by 2 million barrels a day. Less production means you will see another price hike at the pump, which also means another inflation wave is on the way. To battle that, the Fed will probably raise interest rates once again, and crypto prices could see another crash in the near future. This cycle will probably continue for a while.
There has also been a push against proof of work (like bitcoin) crypto mining due to the perceived high energy consumption and dependence on fossil fuels. A popular — but not accurate — way of describing it is that crypto mining consumes more than the total electricity needed to power Norway.
To put things in perspective, crypto mining is actually far greener than the banking system or gold. And much of the bitcoin network is powered by renewable energy. In fact, about 56% of bitcoin mining utilizes renewables, according to the Bitcoin Mining Council. That’s much better than most countries do! Additionally, the Bitcoin Clean Energy Initiative found that bitcoin miners end up purchasing much of the excess renewable energy that can’t be channeled into the grid.
But perception — instead of facts — often drives policy debates. That’s why around 500 environmental organizations, businesses and labor groups in New York have been pushing Governor Kathy Hochul to sign legislation to put a temporary moratorium on fossil fuel-based crypto mining. Proponents of the legislation have argued that crypto mining consumes enough energy to power 750,000 homes. If New York puts this legislation into action, it could drive many crypto miners out of New York. I also think it could set an example for other states or countries looking to address or minimize climate change or reduce energy usage.
I can see a universe where European countries, struggling with energy prices during the winter because of the Russian-Ukraine war, cut off electricity to crypto mining sites because of the perceived problems.
The push toward clean energy and the energy crisis could affect crypto prices in the short term. If mining operations are hindered for any of these reasons, transaction rates will slow down, as will the effectiveness of crypto networks. If this happens, the use of bitcoin, for example, would decrease, which in turn could negatively affect its value in the short term until miners find a solution.
And Finally…
Spooky season is here, so what better time to share a couple of spooky cryptos?
- EVIL (trading at $0.002 as of this writing) – an Evil coin with the purpose to “embrace and inspire evil.” (Yes, that’s its sole purpose.)
- GHOST (trading at $0.11 as of this writing) – created by McAfee antivirus developers, this coin actually has a purpose: to make transactions private and anonymous and thus “help make you nothing but a ‘ghost.’”