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Cryptocurrencies Bitcoin and Ethereum experience a downturn following an unexpected increase in Producer Price Index, dampening expectations for a significant interest rate reduction.

Treasury official Scott Bessent endorsed a decrease of 0.5% in interest rates earlier in the week.

fallof Bitcoin and Ethereum due to a surprise increase in Producer Price Index (PPI), casting...
fallof Bitcoin and Ethereum due to a surprise increase in Producer Price Index (PPI), casting doubts on expectations for a large interest rate cut

Cryptocurrencies Bitcoin and Ethereum experience a downturn following an unexpected increase in Producer Price Index, dampening expectations for a significant interest rate reduction.

Cryptocurrencies, including Bitcoin, Ethereum, Solana, and XRP, experienced a decline on Thursday due to a combination of factors such as increased investor caution, a hotter-than-expected Producer Price Index (PPI) report, and mixed messaging from U.S. Treasury Secretary Scott Bessent regarding government Bitcoin purchases.

Investor Caution and the PPI Report

The hotter-than-expected PPI report indicated persistent inflationary pressures, signaling the potential for the Federal Reserve to keep interest rates elevated longer. This news heightened worries about the Fed maintaining high interest rates instead of cutting them soon, which put downward pressure on risk assets including crypto.

Investor Caution Before Fed Chair Powell’s Speech

The increased investor caution was primarily due to anticipation ahead of Federal Reserve Chair Jerome Powell’s speech at Jackson Hole. The speech was expected to provide further insights into the Fed's monetary policy decisions.

Mixed Messaging from Scott Bessent

Regarding U.S. Treasury Secretary Scott Bessent, his comments added to market confusion. Initially, he stated that the U.S. would not buy Bitcoin for its strategic reserve. However, later, he partially walked back that statement, causing uncertainty and selling pressure in Bitcoin, aggravating the decline.

Impact on Cryptocurrency Prices

Bitcoin's price decreased by 2.9% on Thursday, trading around $118,000, according to CoinGecko. Similarly, Ethereum's price fell by 2.9% to $4,560, and XRP's price decreased by 5.7% to $3.07. Solana's price dropped by 2.4% to $194. The total crypto market cap also decreased by 1% on Thursday.

The PPI report ended a strong trading week for Bitcoin, which had set a new all-time high above $124,000 on Wednesday.

Outlook for the Future

The Federal Reserve is expected to cut interest rates at the conclusion of its September meeting, according to traders. Previously, the White House had teased purchasing Bitcoin to add to the nation's stockpile in a budget-neutral way. However, Bessent's comments appeared to dampen enthusiasm towards Bitcoin on Thursday.

The odds of a quarter-percentage-point rate cut at the Fed's next meeting have decreased slightly from 94.3% to 92.8%, according to CME FedWatch. Despite the recent downturn, Ethereum also surged toward record levels during the same period.

[1] CoinGecko - Bitcoin Price

[2] U.S. Bureau of Labor Statistics - Producer Price Index

[3] CME FedWatch - Fed Funds Futures

[4] Bloomberg - Producer Price Index

[5] CNBC - Treasury Secretary Janet Yellen says U.S. will not buy Bitcoin

  1. The decline in cryptocurrencies like Bitcoin, Ethereum, Solana, and XRP on Thursday was partly due to increased investor caution before Federal Reserve Chair Jerome Powell's speech, as heightened worries about the Fed maintaining high interest rates instead of cutting them soon put downward pressure on risk assets such as crypto.
  2. The Producer Price Index (PPI) report, which indicated persistent inflationary pressures, heightened these investor concerns, signaling the potential for the Federal Reserve to keep interest rates elevated longer.
  3. U.S. Treasury Secretary Scott Bessent's mixed messages regarding government Bitcoin purchases also contributed to market confusion and additional selling pressure in Bitcoin.
  4. Bitcoin's price decreased by 2.9% on Thursday, trading around $118,000, while Ethereum's price fell by 2.9% to $4,560, and XRP's price decreased by 5.7% to $3.07. Solana's price dropped by 2.4% to $194, and the total crypto market cap also shrank by 1%.
  5. Traders expect the Federal Reserve to cut interest rates at the conclusion of its September meeting, but Bessent's comments about government Bitcoin purchases appeared to dampen enthusiasm towards Bitcoin.
  6. Despite the recent downturn, Ethereum also surged toward record levels during the same period, suggesting its decentralized finance (DeFi) ecosystem and other use cases continue to attract potential investors.

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