Sharp Decline in Cryptocurrencies After Strong U.S. Inflation Data
The cryptocurrency market experienced a sharp sell-off on Friday, August 15, influenced by the release of stronger-than-expected U.S. economic data, raising investors' fears of the Federal Reserve adopting a more hawkish monetary policy.
Bitcoin's value dropped by 2.2% to $117,396.54, after reaching a record high of $124,436.8 in the previous session. Ethereum fell by 2.9% to $4,639.89, while XRP dropped by 4.1% to $3.13. The decline also affected other coins such as Solana (down 5.1%), Cardano (over 6%), and Polygon (5.5%).
Meme coins were not spared from the sell-off, with Dogecoin declining by 7%, while the $TRUMP coin fell by 5.6%.
Data from the Producer Price Index (PPI) released by the U.S. Department of Labor showed a monthly increase of 0.9% in July, the highest rise since June 2022, exceeding analysts' expectations of only 0.2% growth.
This strong reading raised concerns about persistent inflationary pressures, reducing expectations for a 50 basis point rate cut in September, and increasing the likelihood of only a 25 basis point cut, which is currently estimated at about 90%.
In related news, the Financial Times revealed plans by American Bitcoin, backed by Donald Trump Jr. and Eric Trump, to expand into Japan and Hong Kong to build a reserve of Bitcoin, reflecting continued confidence from some institutions in cryptocurrencies despite market volatility.
On another note, New York State is undergoing a radical shift in its approach to digital assets, as legislator Phil Steck introduced a bill (Assembly Bill 8966) imposing a 0.2% tax on all cryptocurrency transactions, including Bitcoin, Ethereum, and NFT tokens.
If the law is passed, it will take effect starting September 1, which could significantly impact traders and the state's economy. This move is part of New York's strict policy towards cryptocurrencies, having previously enacted the BitLicense law in 2015, which drove some companies out of the market.
In doing so, New York reinforces its reputation as one of the most stringent states in regulating digital currencies, compared to states like Texas that do not impose income or corporate taxes, or Washington that offers tax exemptions for cryptocurrencies.
