The Crypto Market Is Panicking After the Latest CPI Data, and Here's Why

The crypto market is already super thin and highly leveraged, which means that any price movement is like throwing gasoline on a fire.

The crypto market had a rough night after the latest U.S. Consumer Price Index (CPI) figures hit the scene.

As the numbers dropped, traders hit the sell button like there was no tomorrow, especially in the case of Bitcoin and Ethereum. Everyone was expecting this CPI print to turn things around, and it did — just not in the way bulls were hoping.

With inflation figures meeting expectations, the market quickly started pricing in a higher chance of a 25 basis points rate cut — jumping from 47.5% to 62.5%.

After the CPI news hit, crypto and equities saw a brief spike, but it was like a spark that fizzled out before it even got going.

A big part of this was the U.S. government dumping 10,000 BTC into Coinbase Prime and Jump offloading 17,000 ETH. This sudden fresh supply hit the market like a ton of bricks.

Bitcoin and Ether’s front-end volatility tanked, shedding about 10 vols, while risk reversals dropped to -8 for ETH and -6 for BTC.

This whole situation has traders on edge, and for good reason. The crypto market is already super thin and highly leveraged, which means that any price movement is like throwing gasoline on a fire.

The options market, which is usually a good barometer of where things might head, is looking a lot like more pain could be on the way.

The sell-off was swift, with the fresh supply of BTC and ETH hitting a market that was already on edge. It’s like watching a domino effect — once the first one falls, the rest follow suit.

And right now, traders are scrambling to get ahead of the curve, fearing that this could just be the beginning of a more extended bear run.

QCP Capital analysts pointed out that this reaction was pretty much what they expected. With the U.S. dumping 10 thousand BTCs and Jump doing the same with a huge amount of ETHs, it’s no wonder traders are hitting the sell button.

Despite the chaos, not everything is grim. Yesterday, Bitcoin spot exchange-traded funds (ETFs) saw a net inflow of $11.11 million.

This is pretty interesting, especially when you consider that the Grayscale Bitcoin Trust (GBTC) saw outflows of $25.03 million during the same period. It’s a weird contradiction that shows just how split the market is right now.

The outflows from GBTC align with the recent decision by the New York Stock Exchange’s Arca electronic exchange to withdraw a proposed rule change.

This change would’ve allowed trading of GBTC and other crypto ETFs, but with that off the table, it looks like investors are pulling their money out.

The ETF inflows are a bit of a bright spot, but it’s not enough to offset the broader bearish sentiment that’s taking over.

Ether, meanwhile, is having a rough time. Even though it’s trading 25% above its eight-month low of $2,112, hit during the infamous August 5 crash, the outlook isn’t exactly rosy.

The second-largest cryptocurrency by market cap has been on an upswing, gaining 13% over the last seven days, but analysts are still waving the red flag, warning that the downside risks for Ethereum are very much alive and well.