CPI Report and The Merge Send Ripples Through Crypto Markets 

The Merge, Ethereum’s transition to proof-of-stake, is scheduled to happen within the next 12 hours. However, its success is far from guaranteed with so many moving parts.

And, as if we needed more drama, we also received a fresh CPI report on Tuesday. Considering the correlation between inflation and crypto prices, this is one of the most significant events of the month.

The Merge At Last

The final countdown for The Merge is here. Not just figuratively, but if you search “the merge” in Google, literally. We’ve covered The Merge extensively, so we won’t discuss what it is in this article. Instead, let’s talk about what you should be looking out for leading into The Merge.

• First and foremost, keep track of whether it is successful. If it fails or is delayed, the price of ETH will take a hit. However, if it is successful, we could see a short squeeze that rockets the price up.

• It could also be fun to keep an eye on the EthPoW fork, scheduled to go live 24 hours following The Merge. We don’t recommend interacting with the PoW chain because the potential profits do not outweigh the risk, but it’ll be interesting to see how it does.

• Finally, follow how much ETH is staked in the weeks and months following The Merge. This is key for two reasons. First, it determines the yield for staking ETH, which is vital for the future of Ethereum security. Second, the platform or project that wins the staked ETH battle will likely profit handsomely.

Hopefully, you are just as excited for The Merge as we are. It’s not every week that an event of this magnitude takes place. Let’s hope it goes smoothly.

New CPI Print Runs Hot

It is well-established at this point that crypto prices follow the Fed. When the Fed hikes interest rates, crypto prices decrease. When the Fed lowers interest rates, crypto prices increase.

It is also well-established that the Fed makes interest rate decisions based on the Consumer Price Index (CPI), a measure of U.S. inflation. The hotter the CPI is, the more hawkish the Fed becomes.

For us crypto investors, this means that we want the CPI to be as low as possible. Unfortunately, that was not the case this month.

Even with falling gas prices, the CPI came in at 8.3% for August. Biden is attempting to spin this positively, but this is disappointing to see when the expectation was 8.0%.

Besides the crippling effects of persistent inflation on the average American, the hot inflation report also led to a stark sell-off in stocks and crypto. The Dow dropped 4%, the Nasdaq 5%, bitcoin 10%, and Ethereum 6%.

It doesn’t look like relief will come anytime soon either, with investors now pricing in at least a 75bps interest rate hike.

A lousy day any way you slice it.

Between a Rock and a Hard Place

The contrast between positive fundamentals from The Merge and the bad macro environment from hot inflation has resulted in a very tricky situation for investors.

Our opinion is that it is best to stay safe right now. Fighting the Fed is not often a good bet, and attempting to trade The Merge is risky, considering it is not yet successful.

The tides will eventually turn, but it is best not to try to force anything right now.