Is the rising inflation rate in the US hurting Bitcoin’s revival opportunities?
Important inflation data in the US in June was just released by the Bureau of Labor Statistics on Wednesday, highlighting among many things that consumers pay much more for basic necessities, including food and gas.
According to published data, the consumer price index (CPI) rose by 9.1%, the highest since November 1981, surpassing the 8.6% recorded for May. While the inflation rate, as expected, grows out of the estimates from the Dow Jones index of 8.8%, investors react with fear as many are unsure of where the Federal Reserve will lean towards in its next FOMC meeting.
High-risk assets such as Bitcoin (BTC) fell by 3.38% immediately after the data was published with Ethereum (ETH), and also fell 4.49% within the same time frame. For most of this year, Bitcoin has shown a very close correlation with key US indices such as the Nasdaq Composite, and today’s fall can be felt as the ripple effect in the plunge of futures linked to both the Dow Jones, S&P 500 and Nasdaq 100.
At the time of writing and according to data from CoinMarketCap, Bitcoin changed hands to $ 19,784.25, before jumping back above the $ 20,000 level under the Asia Time trading section. Meanwhile, Ethereum was tied at $ 1,086.56 before returning to above the $ 1100 level.
Where to go from here
It is very likely that the digital currency ecosystem will continue to experience a lot of headwinds as a result of the downturn in the global market for the rest of the year.
However, politicians have two case scenarios regarding the crypto response to the Fed action with regard to sky-high inflation.
One of the two that can support the long-term bullish thesis about Bitcoin and altcoin growth as economic drivers will continue to raise interest rates, a move that aims to reduce inflation, but which can also throw the economy into recession.
While the recession is the worst-case scenario for traditional finance stakeholders, it may well mean the beginning of a probable bullfighting season for cryptocurrencies. Should the economy be thrown into recession, the government will urge and provide liquidity to support companies.
This cash injection will be a bullish case for cryptocurrencies, as it is likely to dilute the value and purchasing power of the dollar, which will pressure many investors to protect their assets in Bitcoin, an asset whose scarcity will make it more seen as a hedge against inflation.
Although these are potential events that could unfold in the economy and crypto industry in the near to long term, no security can be provided, especially when it comes to timing.
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