As Bitcoin (BTC-USD) and other digital tokens dropped this morning, traders around the world wondered: Why is crypto down today? But don’t go on a wild goose chase looking for some Bitcoin-specific black swan. Most likely, the answer is tied to a fresh inflation-data release from the U.S. government.
For the past few weeks, investors across multiple financial markets have waited with bated breath for the U.S. Bureau of Labor Statistics to issue its report for September’s Consumer Price Index ( ). The Bureau’s role, among other things, is to gauge how much U.S. product and service prices have changed year-over-year ( ) and month-over-month ( ).
If the CPI print didn’t show that inflation is falling fast enough, that would be positive for the U.S. dollar but negative for many other financial assets. Persistently high inflation would also mean that the U.S. Federal Reserve could probably continue to raise interest rates via the federal funds rate.
Investors Want to Know: Why Is Crypto Down Today?
What does all of this have to do with Bitcoin and other cryptos? Consider the dynamic between the dollar and Bitcoin. In the United States, BTC is typically measured against the dollar. If the dollar stays high, that’s going to put negative pressure on Bitcoin.
Also, Bitcoin is considered a “risk asset.” When the Fed raises the yields on “risk-free” government bonds, this makes bonds more attractive relative to risk assets. Thus, BTC and other cryptocurrencies are likely to decline in this scenario.
All of this helps to explain why crypto is down today. Today, the CPI reading came in “hotter” (i.e., higher) than economists had expected. They thought that September’s annualized CPI would be 8.1%. However, the actual reading was 8.2%.
Furthermore, on a month-over-month basis, the CPI showed a 0.4% increase. That’s higher than the expected increase of 0.3% over the same period.
So, it appears that some traders are reallocating away from risk assets like Bitcoin and other cryptos. Consequently, BTC dove below the key $19,000 level this morning. Most likely, traders are selling their crypto for dollars. Hopefully, we now at least have some clarity as to what’s happening with digital assets today.
On the date of publication, David Moadel did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.