Ethereum, the second-largest cryptocurrency based on market value, experienced a slight increase in trading on Wednesday, hovering around $1,900 as investors responded to the release of the latest U.S. inflation data, also revealing a small decrease in the annual Consumer Price Index (CPI) for June.
The U.S. Bureau of Labor Statistics (BLS) reported that in June, the CPI experienced a 0.2% increase every month and a 3.0% rise compared to the previous year. These figures fell short of economists’ expectations, which had predicted a 0.3% monthly growth and a 3.1% annual surge.
According to the BLS, the core CPI, which excludes volatile food and energy prices, saw a modest increase of 0.2%. This marks the slightest one-month uptick in the index since August 2021.
Investors and traders closely monitor the inflation data since it directly impacts the monetary policy of the Federal Reserve. This, in turn, significantly affects market sentiment and influences the demand for riskier assets like cryptocurrencies.
The Federal Reserve has gradually increased its policy interest rate since March 2022. This move aims to reduce the inflation rate to its targeted 2%, following a peak of 9.1% in June 2021.
The decline in stock and crypto prices over the past year can be attributed, in part, to the higher interest rates. This has presented financial challenges and necessitated layoffs for tech and blockchain companies.
In June, the Federal Reserve chose not to modify its policy rate, leaving analysts uncertain about Chairman Jerome Powell’s stance on whether to proceed with or halt rate hikes.
The CME FedWatch tool indicates that the market currently prices in a 91% likelihood of another 0.25% rate increase at the upcoming Federal Open Markets Committee Meeting (FOMC) scheduled for July 26th.
Ethereum Outperforms Bitcoin Amid Inflation Uncertainty
While Ethereum rose by 1.3% on Wednesday, the leading cryptocurrency in terms of market value remained unchanged at around $30,288. Bitcoin showed minimal response to the inflation data.
Bitcoin’s price has reached an “equilibrium point,” which often signals an incoming “accumulation phase” during which the asset’s price trades flat for many months, according to Glassnode, a blockchain analytics firm.
Ethereum, on the other hand, has been experiencing a surge in profit-taking transactions following a moderate price increase of 5% over the past week, as per Santiment, another on-chain analytics platform.
Ethereum is benefitting from the increasing popularity of decentralized applications (DApps) and decentralized finance (DeFi) platforms that operate on its blockchain.
Additionally, the rising adoption of non-fungible tokens (NFTs), predominantly issued on Ethereum, further contributes to its success.
DappRadar, a DApp tracking website, reported that Ethereum dominated the industry as the most prominent smart contract platform, with over 2.8 million active users and transaction volume exceeding $11 billion in June.
Ethereum’s market share increased from 18% to 20% in June, while Bitcoin experienced a decline from 43% to 41%, according to data from CoinMarketCap.
Ethereum may potentially experience more growth than Bitcoin in the upcoming months. This is particularly true if inflation remains under control and the Federal Reserve implements a relaxed monetary policy.