After falling in April, inflation picked up again in May, potentially harming cryptocurrency markets already struggling from the Federal Reserve’s stricter monetary policies.
The Consumer Price Index (CPI) increased 8.6% in the 12 months ending in May, the biggest 12-month gain since December 1981, according to the Bureau of Labor Statistics (BLS).
Bitcoin Must Regain $30K In Order To Avoid More Losses
Shelter, food, and fuel accounted for the highest monthly rises in the CPI, a price index that analyses changes in a wide variety of goods and services. On a month-to-month basis, the energy index rose 3.9 percent after dropping in April.
In May, the electricity index grew by 1.3 percent, suggesting that power prices have risen by 12 percent in the last year, raising the cost of Bitcoin mining. If the Fed continues to raise interest rates aggressively, institutional investors may be enticed out of the cryptocurrency market in favor of less volatile options such as treasuries and bonds. The values of most digital assets would suffer if there was a selloff. At the same time as the BLS report was released, the larger crypto market took a knock.
According to CoinMarketCap, Bitcoin has dropped 4.2 percent while Ethereum has dropped almost 7% in the last 24 hours. Other cryptocurrencies were impacted worse, including Solana (down 9%), Avalanche (down 10%), and Cardano (down nearly 11% in the last day). Inflation is driving people to be more careful with their money, especially those with lower incomes who spend a larger portion of their budget on basics like food and rent.
Budget cuts may have a negative impact on demand for digital assets. According to a research issued in April by Arcane Research, the price of Bitcoin has grown increasingly associated with the price of tech stocks listed on Wall Street. According to statistics from blockchain analytics firm Chainalysis, this tendency has maintained through June.