Macro Trumps The Merge As Crypto Dives After Hot Inflation Data

Stocks Had Their Worst Day Since June 2020

Worse-than-expected U.S. inflation numbers sent global markets tumbling Tuesday despite mounting excitement over the Merge, the most significant upgrade to Ethereum in its seven-year history.

Consumer prices increased a tenth of a percent in August and 8.3% in the preceding 12 months. Except for food and energy, U.S. consumers paid higher prices for just about everything in August than they had in July, according to the US Bureau of Labor Statistics.

Economists had expected month-over-month inflation to decline in August and a smaller increase in so-called “core inflation,” which excludes the prices of food and energy, which are considered more volatile than other goods and services.

Supersized Hike

Investors are now girding for another major interest rate hike from the US Federal Reserve.

The vast majority of investors still expect the Fed to raise interest rates by 0.75% at its meeting next week — something it has done at the previous two — according to CME Group’s FedWatch tool. 

Last week, 73% expected a 75 basis point hike; that figure had increased to 80% by early Tuesday afternoon, New York time.

A week ago, however, more than a quarter of investors expected a smaller, 0.50% hike. Now, one-in-five investors expect a 100 basis point hike, which would mark the Fed’s single-largest interest rate increase in at least 30 years.

Markets fell sharply after the release.

Stocks had their worst day since June 2020 as the S&P 500 and Nasdaq Composite fell more than 4% and 5%, respectively. 

Bitcoin, the largest cryptocurrency by market capitalization, dived 8% and is trading just under $21,000 at 2:30 p.m. New York time. Meanwhile, Ether is down more than 7% to $1,600.

ETH Price + BTC Price, Source: The Defiant Terminal

Merge Hype

Cryptocurrencies, particularly ETH, have rallied since their mid-summer lows as excitement built over the Merge, Ethereum’s upcoming transition to environmentally-friendly technology. Despite today’s selloff, Ether has skyrocketed 73% since hitting a 12-month low on June 19 compared to an 18% jump by Bitcoin.

On Eve of The Merge Skeptics and Supporters Gird for Raft of Changes

Shift to PoS Will Reduce ETH Issuance and Impact Staking Yields

Current estimates have the Merge happening early Thursday morning. However, while major cryptocurrencies enjoyed a weekend rally, they’ve hit a wall in the face of macro headwinds Tuesday.