- Inflation is at a 40-year high as investors begin to panic.
- Prior to the release of the report, cryptocurrency prices spiked.
- So far, the crypto market appears to be holding up.
The United States Labor Department recently released the Consumer Price Index (CPI) for January. The data shows that inflation is up by 7.5%. However, at the moment, the crypto market is yet to react significantly to the news.
Inflation Is At A 40-Year High
According to CPI data, inflation in the United States is up to 7.5%, a figure that has not been reached since 1982. The figure is 0.2% higher than predicted by analysts, who estimated the figure to be 7.3%. Analysts believe that the news may lead the Fed to become even more hawkish and hike rates aggressively.
Investors are keeping tabs on the rate as some believe that inflation impacts the crypto market, especially those that consider Bitcoin to be an inflationary hedge. It should be noted that the Federal Open Market Committee (FOMC) decided in January to postpone further rate increases until March. The Fed at the time said, “With inflation well above 2% and a strong labor market, the Committee expects it will soon be appropriate to raise the target range for the federal funds rate.”
If the Fed decides to raise rates aggressively as a result of the recent news, it may see more risk-off sentiment in asset markets like Bitcoin, Ethereum, XRP, and Cardano. However, not all pundits agree that the nature of Bitcoin as an inflationary hedge has been proven even though the asset has a limited supply. Scott Bauer, a former Goldman Sachs trader, is amongst those who believe that there is little correlation between inflation and the Bitcoin price market.
“Inflation still has less influence on bitcoin’s price than other speculative factors… The idea that bitcoin is an inflation hedge has really not been proven yet, it’s still somewhat theoretical,” he said.
Minutes after the news was released, Bitcoin was down about 1.9%, but this dip, considering the Bitcoin market isn’t a significant one, can not necessarily be attributed to the news. Major coins like Bitcoin, Ethereum, XRP, and Cardano are still holding up strong against the traditional markets.
A Rocky 3 Months
In November, major crypto assets hit new all-time highs. However, since then, a large majority of these assets have slumped in value by almost 50%.
It would be noted that it was around the same time that the Fed started reining in the bulk of the stimulus programs that they had engaged in to get the economy running after the pandemic. Yet the correlation between these two happenings is yet to be concretely proven.
Presently, the crypto market appears to be making steady gains as Bitcoin looks on track to reclaim the $45,000 price point. Bauer says he expects the price of Bitcoin this year to range from $30,000 to $50,000, with his bets on the upside.