Bitcoin slumps 7%, reversing gains, after inflation report disappoints

Representations of cryptocurrency Bitcoin are seen in this illustration, August 10, 2022. REUTERS/Dado Ruvic/Illustration

Dado Ruvic | Reuters

Bitcoin fell Tuesday, following stocks lower after the August consumer price index report came in higher than expected.

The cryptocurrency shed 7.31% to $20,804.00 at 12:45 p.m. ET.

The declining price is a reversal of earlier gains. Bitcoin had hit a one-month high of $22,764.49 Tuesday morning before falling, according to Coin Metrics.

The rally, which brought the digital asset back above the key psychological $20,000 level last week, was spurred by softening of the U.S. dollar ahead of Tuesday’s inflation report, which was expected to show that inflation had cooled off. A much-anticipated network update for Ethereum also boosted the digital coin’s price.

But August CPI data showed that inflation rose month over month even as gas prices slipped. The U.S. dollar jumped, and stocks sold off sharply as Wall Street anticipates more aggressive interest rate hikes from the Federal Reserve.

As rates surge, investors sought to shed risky assets like cryptocurrencies.

Ether, the token that runs on Ethereum, also slipped more than 6% on Tuesday ahead of the much-anticipated Merge, expected to take place sometime between Sept. 13-15. During the merge, Ethereum will switch from a proof-of-work model to one that uses proof-of-stake.

The move will help make Ethereum more energy efficient and secure. It should also help draw new investors to the cryptocurrency, which has the second-largest market cap after bitcoin.

Still, it’s not clear when exactly the Merge will happen. It may also take more than the three days investors are currently watching.