How will this affect Bitcoin prices?

US overall inflation figures reached a high level of several decades last month, exceeding the expectations of several analysts.

The consumer price index for all urban consumers (CPI-U) rose 9.1% during the year to and including June before seasonal adjustment, according to data from the Bureau of Labor Statistics.

This result surpassed the 8.8% figure predicted by Reuters and Dow Jones polls, and represented the highest reading for this 12-month inflation target since November 1981.

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The strength of this consumer price data may make it easier for Federal Reserve policy makers to pursue their plans to aggressively raise federal funds rates, which in turn will affect broader borrowing costs.

In June, the central bank raised this benchmark interest rate by 75 basis points, representing the largest change in 28 years. This move came after the Fed’s policy makers raised the federal funds rate by 50 basis points in May and 25 basis points in March.

Bitcoin headwind

Should the financial institution continue in this direction, it could put downward pressure on bitcoin prices by stimulating the strength of the dollar. Furthermore, higher interest rates can reduce the demand for the digital currency by making interest-bearing securities more attractive.

Several analysts commented on this situation, and elaborated on how this development may affect the price of the world’s most famous digital currency.

“The Fed is committed to curbing inflation with aggressive rate hikes, which continue to make lower-risk securities more profitable,” said Brett Sifling, an investment adviser at Gerber Kawasaki Wealth & Investment Management.

“This shift in liquidity is a big issue for risk assets, as it causes a lot of volatility and the wild price fluctuations we see in most markets,” he noted.

“Bitcoin continues to be more correlated with growth / technology stocks, which are not doing so well in this environment,” said Sifling.

“Speculative assets such as crypto will continue to tighten under these inflation and low liquidity conditions,” he predicted.

Michael Rosmer, CEO and co-founder of the DeFiYield cross-chain dashboard, also weighed in.

“With the CPI numbers coming in higher than expected, I think most people expect an even more aggressive response from the Federal Reserve,” he said.

“Interest rate increases could be higher – maybe even 100 basis points next round – and last for several months,” Rosmer said. “Bitcoin – along with technology – will most likely experience more downward pressure as a result.”

“As large as their recent sales have been recently, there is certainly more room to fall,” he continued.

“I think you see that investors are already parking their money in dollars as a result of global macroeconomic uncertainty, and these latest CPI figures could also be a boost for interest-bearing instruments.”

Fed Policy Risks

However, Rosmer warned that if the Fed’s policy makers go too far in raising interest rates, it could “crack” the credit markets. This can lead to a significant deterioration in economic conditions.

“It certainly seems possible for Bitcoin to reach $ 15,000 or less,” Rosmer said. “But I suspect that the macro environment will change here quite dramatically. The fear of recession will increase.”

“Consumers, for their part, are ready to take on more debt – after all, we have seen rising consumer credit levels as people do not want to reduce their lifestyle even if costs increase. With rising interest rates, this increases the risk of default, bankruptcy and reduced expenses, which has a negative effect on property prices. ”

As a result, the central bank may well change course, he said.

“The Fed will probably have to pull back austerity measures and perhaps even increase quantitative easing again in the not-too-distant future,” Rosmer said.

“All this means, Bitcoin and cryptocurrencies may be ready for a leg down, yes, but the macro environment is now shaping up in a way that is likely to see the price continue on its upward trajectory in the coming months. This will take time, but the chorus of Bitcoin-no-sayers is going to surprise. ”

Oliver Gale, co-founder and CEO of Panther Protocol, a privacy-focused blockchain protocol, offered a similar perspective.

“For the time being, risk assets will probably give better results. Yield-bearing instruments will do well given the rate hikes, he said.

“The dollar may well continue to explode upwards, creating chaos in the markets. And as the latter continues to happen, the Fed risks breaking things, like credit markets or a big stock crash, Gale said.

“Given that prices of oil and other key commodities are falling, there is room for the Fed to reverse the austerity measures, and probably soon given the risk of slowing growth. When this happens, the recession will be on everyone’s minds,” he continued.

“And then stocks and Bitcoin will probably have bottomed out. From there, I suspect we will see the beginning of Bitcoin’s rise.”

“It’s going to take time for this scenario to unfold, but over the next year or two I would not be surprised to see Bitcoin approach all – time highs again.”

Disclosure: I own some bitcoin, bitcoin cash, litecoin, ether, EOS and sol.