June’s Red-Hot Inflation Report Rattled Bitcoin and Ethereum Prices. What That Means for Crypto Investors

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Historic inflation seems to be pushing up the prices of everything nowadays, and even the crypto market is not immune from its influence. 

Bitcoin and ethereum prices recovered Thursday after falling significantly Wednesday following the release of June’s inflation report, which showed that prices soared 9.1% year-over-year. Bitcoin rose back above $20,000 on Thursday and ethereum was trading above $1,100 — both up more than 5% in the last 24 hours. U.S. stocks were hit harder and still haven’t recovered, which may have investors questioning whether bitcoin and other cryptocurrencies will continue tracking with more traditional financial markets like in recent months or diverge.

“A day after the release of the CPI, we have seen no massive bleeding in the market and no dump in bitcoin, which leads us to believe that we may have reached a sustainable level from which bitcoin can bounce back significantly,” says Martin Hiesboeck, head of blockchain and crypto research at Uphold

Bitcoin is showing some signs of stabilizing, but “sellers are eagerly watching to see if the June lows will hold,” according to Edward Moya, a senior market analyst at foreign-exchange brokerage Oanda.

While crypto experts and investors have touted bitcoin, the original and largest crypto, as an inflation hedge, it remains to be seen how ongoing inflation will affect it and the rest of the crypto market, but more short-term volatility is a safe bet.

What Does June’s Inflation Report Mean for Crypto Investors?

The crypto market this year has been heavily and consistently influenced by broader macro conditions underpinning the U.S. economy, such as surging inflation, a shaky stock market, rising interest rates, and a potential recession.

The latest inflation report was another instance of macroeconomic factors scrambling the crypto market. Inflation hit a new four-decade high in June, though economists were expecting it to slow down some.

Back in June, May’s inflation data was considered one of the primary catalysts for bitcoin dropping below $30,000. A similar situation temporarily took place this week but the largest crypto steadily clawed its way back above $20,000, a key price level, within a day. Other cryptocurrencies followed bitcoin’s lead. 

So, how is this time different? Some experts say the crypto market may be finally stabilizing after falling for several months, while others say high inflation may have already been priced into the crypto market this time around since many investors and traders were anticipating it. In other words, because investors will likely remain cautious as long as forecasts are pessimistic, the market may not move significantly. However, it’s impossible to know for certain.

“A major bitcoin bottom signal for me is when we see data showing us that inflation is convincingly inflecting down,” Marcus Sotiriou, an analyst at digital asset broker GlobalBlock, told CoinDesk. “I would be cautious until inflation starts to come down, as we have learned that the Federal Reserve is king when it comes to risk assets like crypto, and the pain of quantitative tightening could drag on for many more months.”

What Should Crypto Investors Do Right Now?

Whether you’re a seasoned crypto investor or just getting started, now could be a good time to invest in well-known established cryptos, like bitcoin and ethereum, while prices are low. However, keep in mind that prices could fall down more. 

Always do your research before investing in bitcoin or any other cryptocurrencies. Ask yourself what you want to achieve from your participation in this particularly volatile market, and why. Price swings are to be expected and big dips are nothing to be overly worried about if using a buy-and-hold strategy. 

Experts recommend only investing what you’re OK with losing and keeping your cryptocurrency investments below 5% of your portfolio, as long as your crypto investments don’t stand in the way of your other financial goals. Always prioritize saving for an emergency, paying off high-interest debt, and contributing to a traditional retirement plan before ever investing in crypto as it’s a highly volatile and risky asset. 

The path to long-term wealth and saving for retirement is most often successful for people with diversified investments like low-cost index funds, with crypto making up a very small part.