Why Bitcoin, Ethereum and Dogecoin are falling today

What happened

Stocks of many cryptocurrencies continued their downward slide this week as inflation continues to run high and due to other more specific crypto news.

Stocks of the world’s largest cryptocurrency, Bitcoin (BTC -2.05%)had fallen nearly 2% by 2:43 pm ET today and was trading around $28,660. Ethereal (ETH -8.19%) had fallen more than 8%, and the price of the meme token doecoin (DOGE -7.49%) down more than 6%.

And that

The stock market and cryptocurrencies sank on Friday, after a key gauge of inflation came in higher than expected. The latest data from the Consumer Price Index (CPI), which tracks a basket of daily goods and services, shows prices rose 8.6% in May year-over-year. Economists had been forecasting just an 8.3% rise, and new data shows inflation may not yet have peaked.

This could be problematic for cryptocurrencies, which have not been doing well since the Federal Reserve began raising its benchmark overnight lending rate and began drawing down its nearly $9 trillion balance sheet, thus extracting liquidity of the economy in a process known as quantitative adjustment (QT). ). If inflation remains high, the Fed will be forced to go ahead with aggressive rate and QT hikes, which has hit riskier assets such as cryptocurrencies.

In more crypto-specific news, Ethereum developers have delayed a key step in their long-planned network upgrade that will transition the network to the more energy-efficient proof-of-stake mining concept. Currently, networks like Bitcoin and Ethereum use the concept of proof-of-work mining where miners use a lot of computing power while trying to solve a cryptographic puzzle as quickly as possible to earn new tokens.

The developers said on Friday that they will delay the so-called “difficulty pump,” which is a mechanism that makes crypto puzzles increasingly difficult until it is eventually impossible to mine tokens using proof-of-work. Once the “difficulty bomb” is turned on and allowed to run, it essentially triggers a countdown to the new proof-of-stake system, which has now been in the works for years.

“Delaying it buys you time,” Thomas Jay Rush said in a call between Ethereum developers, according to Bloomberg. “It looks bad for the community, but there’s nothing you can do about it.”

The developers added that they do not intend to delay the merger, which is scheduled for August, but investors may think a further delay is inevitable.

Now what

The latest CPI inflation reading is not what investors were expecting, but it is data from May, and there are some signs that inflation could be peaking soon. Big Box Retailer Goal recently told investors that it has a lot of extra inventory as consumers have stopped buying discretionary goods.

Regardless of the delays, I expect Ethereum to complete its network upgrade, which it has been working on for quite some time. This makes the network not only much more energy efficient, but also much more scalable, allowing Ethereum to process many more transactions per second through its network.

On the downside, I would buy Bitcoin and Ethereum but ignore Dogecoin, which doesn’t really have any real technical advantage or unique use case over other cryptocurrencies.

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