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The Hash Insider: CPI figures rekindle optimism


The NCI closed Sunday (8/14/22) 7.1% above  last week’s closing. The index’s performance was influenced by ether (ETH), up 13%, while bitcoin (BTC) rose 4.6%. 

After an uneventful week during which investors stood on the sidelines, crypto markets regained momentum in the early hours of Monday. By the time markets opened in North America, bitcoin had gained over $1,000, surpassing the $24,000 mark, while ETH was up $100, surpassing the $1,800 threshold.

Prices remained mostly steady into and throughout Tuesday. However, as equity markets prepared to close in North America, crypto prices took a steep downturn, returning Monday’s gains as BTC and ETH fell 4% and 5%, respectively.

This retraction was likely a product of the uncertainty surrounding the Consumer Price Index (CPI) reading for the month of July due to be released on the following morning. Previous inflation readings showed signs that suggested inflation would soon peak, but the robust job creation numbers released in the week prior exceeded market expectations and seemed to point in the opposite direction.  

Prices remained stable until the US Labor Department divulged its inflation report at 9:00 EST on Wednesday, at which point prices immediately took off. CPI figures showed inflation had slowed from 9.1% in June to 8.5% in July. Results on a monthly basis were flat (0%), after registering a 1.3% increase in June. Core CPI results were slightly less encouraging—since that result didn’t benefit from the steep drop in energy prices—but were still below market expectations.

Despite the disproportionate influence of the volatile energy category, the CME FedWatch tool showed that the CPI reading had flipped investor sentiment in regards to the next Fed rate hike, with two-thirds of investors now predicting a 50 bp increase in the Fed funds rate in September. Consequently, BTC immediately rose back over the $24,000 mark.

Later on Wednesday night, Ethereum’s Goerli testnet successfully merged with the PoS (Proof-of-Stake) Beacon Chain. The merge of the final testnet did not seem to impact ETH prices much. This lack of movement may have been a consequence of ETH having already registered a $150 rise in the wake of the positive CPI results or, perhaps, a product of the string of successful testnet merges making Goerli’s success a foregone conclusion.

In any case, the successful merge of the final of three testnets moved the de facto merge of Ethereum’s mainnet into the next slot on the chronological docket. Current technical on-chain indicators, like terminal total difficulty, suggest the merge is about a month away (September 15 or 16).   

The growing imminence of “The Merge” has brought about a discussion surrounding the possibility of hard forks, which would result from Ethereum miners attempting to create an offshoot chain that preserves the PoW (Proof-of-Work) consensus mechanism. Ethereum co-founder Vitalik Buterin commented on the matter earlier in the week, reassuring investors that an eventual fork is unlikely to cause “significant harm.”

On Thursday afternoon, crypto markets lost momentum despite no specific negative drivers, only to rally as markets opened in North America on Friday. During the weekend, prices remained near Friday’s highs despite experiencing modest levels of volatility on Sunday.



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