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October 17, 2022

Crypto Recovers Instantly From CPI Sucker Punch

October 17, 2022

Bitcoin was consumed with volatility on Thursday and Friday as the US released September’s CPI results. 

Although lower than in August, the higher-than-expected CPI result sent crypto back toward June 2022 lows. However, both crypto and stocks rallied instantly, leading many to question if a market bottom is starting to form.

As market participants digested CPI results, elsewhere, crypto enthusiasm oozed at Bitcoin Amsterdam 2022. 

Bitcoin developers and enthusiasts were joined by a host of celebrities to discuss Bitcoin’s safe haven potential, energy concerns, and how to improve the usability of the network. 

  • Crypto volatility returns as CPI data reveals inflation is still red hot
  • Bitcoin enthusiasm oozes at Bitcoin Amsterdam 2022 conference
  • Change to crypto accounting rules could bring institutional adoption

Crypto volatility returns as CPI data reveals inflation is still red hot

Volatility flooded the crypto markets late last week as market participants digested September’s inflation figures from the US. 

While lower than August’s consumer price index (CPI) figure of 8.3%, September’s higher-than-expected year-on-year print of 8.2% revealed that US inflation still remains extremely high. A print of 8.1% had been expected by most analysts. 

Although the federal reserve has tried to aggressively tackle inflation by raising interest rates and withdrawing monetary supply from the market, their efforts have not yet led to a significant slowdown in the rising costs of goods and services.

While market participants worry about the bearish macroeconomic landscape, the price of Bitcoin has remained uncharacteristically calm in recent weeks. 

As expected, high CPI figures resulted in an initial bearish reaction from the market as it likely locks in another interest rate hike from the Fed in November. However, shortly after, risk-on markets quickly recovered.

After dropping to an initial low of $18,200, Bitcoin rebounded back into its trading range and eventually closed the day at $19,300. Prices then continued to rise on Friday and reach a peak of $19,900. 

The stock market indices of the S&P 500 and NASDAQ 100 replicated this price action, again, showing the strong correlation the two markets now share. With the lack of bearish conviction, many are now questioning if a market bottom is starting to form. 

Investors now look to the release of late-October earnings reports, which will highlight if higher interest rates are beginning to kill business.

US Consumer Price Index figures from September 2002 to September 2022.

Crypto enthusiasm oozes at Bitcoin Amsterdam 2022

As markets awaited the macroeconomic news of the CPI, one of the largest Bitcoin conferences of the year unfolded in Amsterdam. Bitcoin experts and enthusiasts gathered from all over the world to explore a wide range of topics and challenges at Bitcoin Amsterdam 2022.

Ex-hedge fund manager, Greg Foss, highlighted Bitcoin’s continued potential as a safe haven asset and a hedge against inflation. Although an idea that has sometimes been lost in the bearish macro environment,  Foss explained that the coin’s engineered scarcity is intriguing when compared to the debt-driven monetary system.

“I found Bitcoin in 2016. I’ve been researching it ever since, and in my opinion, it is the most important technological and financial solution to our looming debt crisis that we’re seeing coming true in real-time right now. What’s happening in the U.K. is extraordinary stuff. I haven’t been this nervous about the financial system since 2009”, described Foss.

Alongside Bitcoin’s monetary future, experts also discussed issues regarding the energy consumption of Bitcoin mining, particularly in Europe, and the future implementation of sidechains that could improve Bitcoin’s usability. 

Due to the ongoing energy crisis in Europe, European Bitcoin miners are finding it increasingly difficult to find low-cost and stable power. 

According to the CEO of the mining giant, White Rock Management, “really, the only affordable resources for energy for mining in Europe are in locations where the energy is stranded. When you transport energy, you have losses in the grid, but you also need enough capacity in the distribution network.”

In a separate discussion, Paul Sztorc, a renowned cryptographer and Bitcoin developer, outlined how the future use of sidechains could vastly improve the Bitcoin network. New technology such as OpCodes, Simplicity, and zero-knowledge SNARKS were all put forward as suggestions to help scale the blockchain. 

Alongside crypto experts, speakers also included the ex-European Parliament member Nigel Farage and Julian Assange’s wife, Stella Assange, who both voiced their support of decentralization.

Banner for Bitcoin Amsterdam 2022.

Crypto accounting rule change could accelerate institutional adoption

On Wednesday, the crypto community was thrilled to hear that the Financial Accounting Standards Board (FASB), had put forward new reporting rules for cryptocurrencies. 

It is hoped that the new changes will help to encourage new institutional adoption. Up until now, there has been a lack of clarity on how to disclose cryptocurrency assets, which has turned away many institutional investors.

According to the FASB board meeting that took place on Wednesday, companies should use fair-value accounting when it is time to report on digital assets, such as Bitcoin. 

Presently, assets like Bitcoin are reported as “intangible assets”. The price of those assets needs to be written down even if their value falls below the purchase price. As gains can only be recorded if assets are sold, it can cause confusion among long-term investments and disrupt the view that investors have on a company.

A change to fair-value reporting would mean that companies could report gains and losses exactly the same as traditional financial assets. 

This would have a substantial impact on companies that already hold cryptocurrencies on a company balance sheet including Tesla, MicroStrategy, Coinbase, and Block. 

According to a tweet published by MicroStrategy’s CEO, Michael Saylor, “this is a major milestone on the road to institutional Bitcoin adoption.”

The new crypto rules from the FASB could entice other institutions to invest in digital assets as the level of accounting required would be significantly reduced. 

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