Bitcoin prices increased even after March CPI data showed that inflation in the United States continues to increase, hitting its highest level since 1970 with a reading at 8.5%. However, the price of Bitcoin has been currently 11% down since January 1st, but when you adjust for inflation, the net price change is just 2.5%.
Looks like Bitcoin has been acting as an inflation hedge for quite some time now. The Nasdaq (QQQ) has been down 14% since the start of 2022. Indicating that people want to buy Bitcoins to maintain their purchasing power when prices rise due to higher inflation levels across America.
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Inflation Effects On Crypto Market
On April 11, Bitcoin prices fell by over $3,000 after rumors that inflation would be high. However, the fall was opposite to expectations for an asset class considered an inflation hedge.
The relationship between Bitcoin and tech stocks has been somewhat intriguing for several months. For example, the price of Bitcoin compared with Nasdaq Indexes suggests some correlation in those days leading up to CPI data release day.
Is Bitcoin An Inflation Hedge?
In the lead-up to this year’s CPI release, many investors believed that inflation data had been priced into stocks for too long. Fears grew even greater as it became clear how high White House estimates suggested these numbers would be “extraordinarily elevated.”
Lark Davis, a crypto investor, and analyst, tweeted;
Tomorrow’s bad inflation data could already be priced in after the warning from the White House, that is if it is only like 8.5%. But if it is anything over 9%, then we are probably heading lower as that is worse than the market expects. IMO.
The short-term market response to CPI data seems optimistic, but it’s unclear how investors will react in the long term. Bitcoin outperformed tech and mirrored its overall sentiment; for example, Nasdaq moved up over 5 points in pre-market trading as the news broke.
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Crypto traders on Twitter compare traditional finance’s savings rates to DeFi and Bitcoin’s inflation due to its fixed supply. Bitcoin price increased by $400 in 30 minutes over the news.
Another crypto analyst, Josh, tweeted;
If you’re not earning +8.5% on your savings, you are losing money!
Meanwhile, #Bitcoin’s inflation rate is at 1.7% and cannot be manipulated.
The CEO of MicroStrategy, Michael Saylor, said “inflation is worse than you think” before this week’s Consumer Price Index (CPI) report. This sent equities markets into an immediate dive as traders prepared themselves with higher prices.
The markets were bracing themselves for inflation to increase even higher than expected. This event has led to a rare sell-the rumor buy news trading pattern. Bitcoin hit a local bottom of $39,000 around 9 pm EST before climbing throughout the night.
Featured image from Pixabay.com, chart from Tradingview.com