5 Ways to Increase Acceptability of Cryptocurrency: From Skepticism to Mainstream Adoption
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2022-07-15 | Selina Mathew
Cryptocurrencies rallied earlier this year on news that the U.S. inflation rate had reached a two-year high. But a few recent headlines suggest that investors may be focusing too much on their bullish outlooks and not enough on economic data such as consumer price index (CPI) data released Friday by the government.
Bitcoin was down 4% at $9,073 in afternoon trading Thursday after falling 10% from its peak on June 20, according to CoinDesk prices tracked across multiple exchanges including Coinbase Pro and GDAX Inc., which are owned by Coinbase Inc., one of the largest cryptocurrency exchanges by volume worldwide.
Bitcoin and Ethereum are both down
In recent weeks, with the largest digital currency by market value last down 5.5% at $9,071.35 and Ethereum off 6.3% at $219.50, according to CoinDesk. The declines came as concerns about inflation loomed over cryptocurrencies, which have been on a tear since late 2017 due to high volume trading volumes coupled with low-interest rates from major central banks such as the Bank of Japan or Federal Reserve that have pushed up bond yields worldwide (see “Bitcoin Surge Drives Bond Yields Higher”).
BTC/USD 1 DAY PRICE CHART - COINMARKETCAP.COM
Soaring inflation could raise concerns over the Federal Reserve’s ability to support the recovery in the longest U.S. economic expansion on record that has been undercut by the coronavirus pandemic.
Fed officials have repeatedly said they will allow price pressures to run hot as they work to bring millions of Americans back into the labor force, even if it means accepting higher inflation for a period of time.
The Fed has been allowing inflation to run hot for a long time. It’s starting to show.
The Fed’s ability to support the recovery has been challenged by soaring prices, including on food and energy products as well as medical care. The central bank has tried to keep inflation at around 2% but its attempts have not worked out so far. A recent report showed that prices grew faster than expected last month, reversing two straight monthly declines in signs of a possible upturn in inflationary pressures after years of undershooting those levels by hundreds of basis points per year (0.01%).
The Fed’s preferred measure of inflation surpassed its 2% target for the first time since 2018
Rising 3% in June from a year earlier, and economists expect it to stay above target for several years as the economy reopens from coronavirus-triggered shutdowns.
CPI is considered good news because it shows that prices are rising faster than wages or other costs—a sign that inflation is building up. But when average hourly earnings grow more slowly than prices do, workers get paid less even though their productivity remains unchanged.
This can happen if there's too much demand for labor and employers don't raise wages enough to keep up with higher costs incurred by increased business investment in machinery and equipment (e.g., computers).
ETH/USD 1 DAY PRICE CHART - COINMARKETCAP.COM
“This is why people are starting to get concerned about cryptocurrencies because there is a real expectation that we are going to start to see inflation pick up and people don’t want to be in dollars anymore,” said Michael Hewson, chief market analyst at CMC Markets UK.
Bitcoin fell more than 2% on Monday after a report that the U.S. Consumer Price Index (CPI) rose 9% in June, and Ethereum dropped nearly 5%.
This is why people are starting to get concerned about cryptocurrencies because there is a real expectation that we are going to start to see inflation pick up and people don’t want to be in dollars anymore,” said Michael Hewson, chief market analyst at CMC Markets UK. Bitcoin has been struggling since last week when it hit an all-time high of $7,800 before falling back down by nearly $1,000 over the weekend.
Ethereum had seen its own volatility recently after hitting highs above $400 earlier this month but has since fallen back into negative territory this week and was trading near $300 as of late Monday afternoon London time (GMT).
Bitcoin and Ethereum fell after news that U.S. Consumer Price Index (CPI) rose 9% in June
Bitcoin is a digital currency, which means it doesn't exist in physical form as dollars or euros do. Instead, it's stored on computers around the world and can be spent via software applications or websites that accept bitcoin as payment for products or services.
It also operates outside of any central bank or government control—which makes it different from traditional currencies like the U.S dollar, euro, and pound sterling that are issued by governments to facilitate trade among their citizens; this means there’s no single entity controlling how much money each person has access to when they need it most: during times when prices go up due to inflationary pressures (and vice versa).
Takeaway
The current trend for the cryptocurrency market is that it’s down. Bitcoin has been on a downward trend since May and now sits at $9,500. Ethereum has also fallen 5% from its high just last month as investors fear rising inflation in the U.S..
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