Interest in inflation is driving sentiment for the cryptocurrency crowd. Here is what it means for digital assets:
The Spectre Of Inflation: The U.S. Federal Reserve’s two-day meeting will come to a close on Wednesday. The central bank is expected to announce a rate hike at the conclusion.
The Federal Reserve’s commentary is likely to drive global markets in the short and long-term in the backdrop of a festering Russia-Ukraine war.
Rate hikes are anticipated as the consumer price index rose 7.9% in February — the biggest jump since 1982.
A FUD Scenario? In a recent note, behavior analysis platform Santiment said that Inflation has been “traders' minds as of late to attribute reasons for the market downturn.”
This is an ironic development, as cryptocurrencies such as Bitcoin (CRYPTO: BTC) have long been touted as a cure for inflation since they are deflationary.
“Considering the unusual circumstances of crypto being so closely tied to equities right now, this inflation fear could end up being a classic case of FUD when final Fed decisions are all said and done,” said Santiment.
The Social Volume Of Price Rise: Heading into the current week, the interest of the “crypto crowd” in inflation has spiked massively.
“In most instances we've seen in recent months, crypto crowds discussing inflation generally leads to an impending downturn,” noted Santiment, while drawing a parallel with investor interest during wartime and their perception of inflation.
“Initial panic over new developing news has sent prices down, but very quickly those dips are bottom-up as markets decide that the previous move was an over-reaction.”
Sell The Rumor, Buy The News: Santiment said irrespective of the U.S. central bank's announcements, the “age-old suggestion” of “selling the rumor, and buying the news” could play out if fear persists.
“We always need to remember to not blindly follow the path of ‘crowd expectations.’ If the subject of inflation begins to settle down, this can be a trigger for Bitcoin's next bull run,” wrote Sentiment in a note seen by Benzinga.
In the early hours of Wednesday, ahead of the possible rate hike, BTC, Ethereum (CRYPTO: ETH), and Dogecoin (CRYPTO: DOGE) saw a sudden spike.
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