Benzinga - The cryptocurrency market experienced a sharp downturn on Tuesday, mirroring a broader sell-off across financial markets triggered by hotter-than-expected inflation data.
Bitcoin (CRYPTO: BTC), which just a day earlier had breached the $50,000 mark, plunged 3% to $48,535.17.
The catalyst for the market chill was the latest Consumer Price Index (CPI) report from the U.S. Bureau of Labor Statistics.
The January inflation reading came in higher than economist expectations, prompting concerns that the Federal Reserve might not be able to implement the multiple rate cuts previously anticipated by investors.
This spooked risk assets, including cryptocurrencies.
Rising Yields, Shrinking Rate Cut Hopes:
Nick Timiraos, Chief Economics Correspondent at The Wall Street Journal, offered insights into the impact of the CPI data on the Fed's monetary policy trajectory.
He highlighted that hopes for a March rate cut have been effectively extinguished, while officials seeking broader disinflation beyond goods will be disappointed by the report's findings.
The report showed persistent inflationary pressures in the services sector, despite some deflation in goods prices.
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Reduced Probability Of March Cut:
Charlie Bilello, chief market strategist at Creative Planning, echoed Timiraos' concerns and quantified the shift in investor sentiment.
He revealed that the probability of a March rate cut, which stood at 77% just a month ago, has plummeted to a mere 9% following the hot inflation report.
Crypto Market Feels The Sting:
This shift in expectations impacted risk assets like cryptocurrencies significantly.
With the benchmark 10-year U.S. Treasury yield rising 10 basis points, investors became more cautious, pulling back from riskier investments like Bitcoin.
BTC Price Check: Bitcoin was down 1.3% in the past 24 hours to $49,105 at the time of publication Tuesday.
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