Crypto markets fall again on concerns about inflation and rising interest rates

The U.S. Institute for Supply Management ISM non-manufacturing purchasing managers' index (PMI) in August was better than expected and hit a four-month high. U.S. service industry activity gained momentum in August, indicating to investors that Federal Reserve officials may continue to raise interest rates by 75 basis points on September 21. In addition, it is expected that most central banks around the world will generally follow the Federal Reserve's sharp interest rate hikes. Fundamental indicators and market expectations led to another decline in the crypto market.

The Purchasing Managers' Index is an index compiled from monthly surveys of purchasing managers, which can reflect the changing trend of the economy. It covers areas such as production and circulation, manufacturing and non-manufacturing, and is divided into manufacturing PMI, service PMI, and some countries have established construction PMI. The Institute for Supply Management reported that the non-manufacturing purchasing managers' index rose to 56.9 last month from 56.7 in July, which was the second consecutive month of increase after three months of decline. Following the results, the CME FedWatch tool reflected a new high in the probability (74% probability) that the Federal Reserve will raise interest rates by another 0.75%.

Analysts pointed out that some important data on the US economy showed that there was no sign of recession in the US economy. This has pushed up US bond yields to a certain extent and brought more boost to the US dollar. In addition, only when the third-quarter inflation data released at the end of October showed that price pressures had eased, the central bank would be likely to slow down its tightening pace.

Another important data is the August Consumer Price Index, which will be released on September 13. CPI is expected to be high due to the decline in gasoline prices. Meanwhile, Federal Reserve Chairman Jerome Powell recently emphasized that the Fed is committed to fighting inflation with higher interest rates and does not intend to back down. Given concerns about inflation and rising interest rates, investors will believe that this will make the Fed more aggressive in raising interest rates, and the overall crypto market sentiment is not high.

Not only the Federal Reserve, but also European Central Bank board member Knot said that the neutral interest rate may not be enough to solve the problem of high inflation, and the market's pricing of a September rate hike is not unwise. At the same time, he said that he is inclined to raise interest rates by 75 basis points.

In terms of market conditions, as of 11:00 a.m. on September 7, BTC fell below $19,000 and ETH fell below $1,500.

In terms of investment, according to a new report from global auditing and consulting firm KPMG, global investment in cryptocurrency companies fell from a record $32.1 billion last year to $14.2 billion in the first half of 2022, and this slowdown will continue until the end of 2022. KPMG also expects that in the second half of the year, investors will shift from companies offering tokens and NFTs to blockchain infrastructure projects, especially the use of blockchain in the modernization of financial technology. Analysts believe that there is a growing focus on solutions related to compliance and transaction traceability, as well as an increased interest in stablecoins by companies, which is a low-risk way to invest in cryptocurrencies.

Despite the slowdown in market conditions and investment enthusiasm, the crypto and blockchain industries continue to show signs of maturity. Payment giant Visa pointed out that cryptocurrencies have attracted the attention of consumers, investors, developers, and even policymakers. Although the role of cryptocurrencies in the future remains to be seen, it is certain that cryptocurrencies will be used in more scenarios in the future.

In addition, Visa's global survey shows that more than half of adults who are interested in cryptocurrency hope that banks can provide cryptocurrency products, and among the respondents who already own cryptocurrency, nearly 40% are likely to switch their main bank to a bank that provides cryptocurrency products. Financial institutions also need to formulate cryptocurrency strategies as soon as possible to help consumers enter the cryptocurrency ecosystem smoothly and safely.

At the same time, KPMG also stated that despite a decline since the beginning of 2021, the continued growth pace of cryptocurrencies "highlights the growing maturity of the field and the breadth of technologies and solutions attracting investment."