- Inflation has reached a 40-year high and investors begin to panic.
- Prior to the report’s release, cryptocurrency prices surged.
- So far, the crypto market seems to be holding up.
The United States Department of Labor recently released the Consumer Price Index (CPI) for January. The data shows that inflation increased by 7.5%. However, the crypto market has not reacted significantly to this news at the moment.
Inflation is at a 40-year high
According to data from CPI, inflation in the United States has risen to 7.5%, a level not seen since 1982. The figure is 0.2% higher than analysts’ forecasts, which had expected 7.3%. Analysts believe that this news could prompt the Fed to become even more aggressive and raise interest rates.
Investors are watching the interest rate as some believe that inflation will have an impact on the crypto market, especially those who consider Bitcoin as an inflation hedge. It should be noted that in January, the Federal Open Market Committee (FOMC) decided to delay further rate hikes until March. The Fed said at the time, “With inflation well above 2% and a strong labor market, the Committee anticipates that it will soon be appropriate to raise the target range for the federal funds rate.”
If the Fed decides to aggressively raise rates based on the recent news, it could worsen sentiment in asset markets like Bitcoin, Ethereum, XRP, and Cardano. However, not all experts believe that Bitcoin’s nature as an inflation hedge has been proven, despite the asset’s limited supply. Scott Bauer, a former Goldman Sachs trader, is among those who believe there is little correlation between inflation and the Bitcoin price market.
“Inflation still has less impact on the bitcoin price than other speculative factors… The idea that Bitcoin is a hedge against inflation is not really proven yet, it is still rather 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.
Source: ZyCrypto
