The price of Bitcoins has been around $37.4K. The good news is that the US inflation data was better than what most had anticipated. The Consumer Price Index (CPI) has remained flat for the month. The economist forecasts a rise of 0.1%. As per StockCharts.com senior technical analyst Julius de Kempenaer said “We’re in for a new move higher”.
Impact of US Inflation on Bitcoins
The price of Bitcoins have increased by nearly 1%. The CPI inflation has been declining for months. However, it is still below the US Federal Reserve target of 2%. The core rate has hovered over 4% for the past several months. The Federal Reserve Members claim that one better rate hike is probable before describing the present tightening cycle. Joseph Brusuelas, the chief economist of RSM claims that the core prices have declined by 0.2% in October. There is also a chance of more disinflation moving forward. In 2024, the shelter costs may be reduced slightly.
Relationship between Bitcoins and US Inflation
There is no direct relationship between the two. However, it would be naive to suggest that Bitcoin remains unaffected by inflation in the US. Inflation often leads to price rises and erodes the valuation of fiat currencies. Some investors view cryptocurrencies as an effective hedge against inflation. In this regard, only gold works similar to cryptocurrency.
Bitcoin is the largest cryptocurrency in the world in terms of market capitalization. The US Federal Reserve is one of the major central banks and it deals with inflation. Usually, the Federal Reserve raises the interest rate. It also tightens monetary policies to decrease the speed of price rises. Many asset classes may witness price falls during inflations. Similarly, cryptocurrencies may experience inflation. This is because different monetary policies determine the policies of crypto companies.
Inflationary Nature of Bitcoins
Contrary to popular perceptions, Bitcoin is not immune from inflation. It is mostly inflationary. The total supply of Bitcoin rises after mining. The number of Bitcoins decreases by half every four years. The supply of Bitcoin is fixed at 21 million. In the past, Bitcoin has not acted as an inflation hedge as per reports by Bank of America. The returns on Bitcoin have become more correlated with the wide market indices. This means that whenever markets tumble, the price of Bitcoin may fall too
Significance of US CPI in Financial Markets
The US Consumer Price Index (CPI) data is always relevant for crypto investors too. People interested in traditional forms of investment pay close attention to it as well. There are many reasons why CPI is important.
Stock market trend anticipation
The users buying Bitcoins do not stay in isolation. Therefore, whenever there are higher inflation rates, the slowing down of business becomes a common phenomenon. This is why customers tend not to invest in stocks during this phase.
Calculating Consumer’s Purchasing Power
The purchasing power matters a lot for cryptocurrencies just as it matters for fiat. The US Federal Reserve states that a 2% increase every year is healthy for the economy. However, high inflation can significantly reduce the consumer’s purchasing power. This indirectly affects crypto users too because high inflation discourages risky investments.
Relevant for Business Decisions
The consumer Price Index is highly relevant for making certain business decisions. It allows people to understand the local conditions of the market. It allows people to predict major market trends and analyze them with past ones. Sometimes, this is useful for cryptocurrencies too because dwindling stock market prices can decrease crypto prices and vice versa.
Impact of CPI on Bitcoin
Bitcoin’s price has been around $37.4K after US inflation data. In times of adverse economic conditions, Bitcoin may or may not take a hit. This is because prices of Bitcoin are volatile and surrounding factors do have an impact. According to some experts, the CPI can have high pressure on cryptocurrencies. For example, if the CPI’s prices fluctuate quickly, then there can be signs of volatility in a crypto market. However, it is also true that a rising CPI may not lead to losses in crypto trades.
The US CPI data affects Bitcoin’s prices but not uniformly. It is also true that this time Bitcoin’s price has risen considerably. The US CPI needs to be analyzed properly with the past data for a better understanding of the market. The purchasing power of consumers matters a lot in determining the prices of cryptocurrencies like Bitcoin too. Market volatility of Bitcoins remains its feature and may not always coincide with inflation.