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Bitcoin Slides as Crucial Inflation Indicator Spooks Markets

Bitcoin took a sudden nosedive last week, plunging the whole crypto market into the red. Seemingly, inflation has been the catalyst of this dip, astounding investors within this biosphere.

The CoinGecko data indicates that Bitcoin is currently trading at $23,070, suffering a 3% dip, yet last week it broke ranks to trade over the $25,000 mark, a first in more than six months. Many other cryptocurrencies have also been hit so hard so that Ethereum lost 3.1% trading in a day as Dogecoin traded at $0.082, suffering a 3.3% drop in just under 24 hours.

Typically, cryptocurrency follows the U.S. equities market daily. Crypto investors shifted their high-risk assets llast Friday right after crucial data streamed in showing possible interest rate spikes in the near future by the U.S. Federal Reserve.

James Butterfill, head of research at CoinSearch, spoke to Decrypt saying the sudden dip in crypto prices coincided with U.S. macro data and insisted that “investors are on the lookout for a hawkish Fed.” The report that came in last week showed that the price index for personal expenditure rose to 5.4% since last year as the core metric also rose to 4.7%, even as inflation biting into the world’s biggest economy increased.

The investors in equities have reacted by dumping stock; the Dow Jones Industrial fell by no less than 390 points (1.2%) while the S&P 500 sloughed 1.6% and the Nasdaq Composite shed 2%.

This trend in Bitcoin prices isn’t a first; the most turbulent asset-class has been chased down by other equally turbulent assets at every sign that the Fed might remain aggressive in its monetary policy. The Fed has been raising the interest rates since last year in a desperate attempt to rein in the 40-year high inflation. The Fed raised the rates four times by 75 basis points (BPs) and later slowed down by raising the rates by 50 BPs.

The central bank recently slowed down to 25 basis points though Fed chair Jerome Powell has been quoted multiple times saying it will be a bumpy road ahead to tame inflation. Investors are keen to avoid risky assets such as Bitcoin and instead are focusing on assets deemed as safe havens, such as the U.S. dollar, which is currently doing well. The dollar index on Friday sprung 0.5%, a two-month high.

Crypto exchanges such as Coinbase Global Inc. (NASDAQ: COIN) are likely to see plenty of activity in the near term as traders react to or anticipate the effects of the interventions of the Federal Reserve to bring inflation back under control.

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