After weeks of almost continuous good news for the cryptocurrency industry, we are seeing a widespread sell-off today. Big cryptocurrencies are down, altcoins are down, and even meme coins are having a rough day.
In the last 24 hours, Bitcoin (BTC -7.59%) is down 5%, Ethereum (ETH -3.78%) is down 1.3% after being down as much as 8%, and Dogecoin (DOGE 4.88%) has fallen 2.4% as of 1 p.m. EST. Very few cryptocurrencies are trading higher today and some are down nearly 10% in the last 24 hours.
The biggest news this week is that inflation is going up faster than expected and cryptocurrency investors don't quite know what to make of that. Bitcoin and other major cryptocurrencies were up sharply yesterday after the Labor Department reported that the consumer price index was up 6.2% from a year ago, the highest inflation rate since December 1990.
Higher inflation in theory will lead to higher interest rates and investors looking for ways to hedge inflation and higher rates. As a store of value, Bitcoin, in particular, was seen as a potential place for investors to put money if inflation picks up. That's why it was up yesterday, but the trend has reversed course today.
It will take time for the market to figure out what to do with the latest inflation data. There are solid arguments that inflation is only heading higher but there are also solid arguments that many inflationary drivers like higher auto prices, rising food costs, and even higher oil and natural gas prices will ease over time.
We also learned on Wednesday that Bitwise Asset Management decided to withdraw its application for a Bitcoin futures ETF. The company will focus on a spot-based ETF instead, but the two products could have brought a new cohort of users into the Bitcoin market.
Cryptocurrencies have been on a quick run higher over the past month. Bitcoin and Ethereum, in particular, are up over 20% and a pullback is natural at this point. It could simply be that big investors are taking some chips off the table today.
The biggest questions for cryptocurrencies are still outstanding, like what are long-term use cases and when will fees for transferring cryptocurrency come down? Those will get answered in time, but right now we're seeing natural volatility in a new market for investors and creators.