The consumer price index rose 7.5% in the last 12 months, beating expectations. Bitcoin faltered after the report amid an uncertain scenario.
Inflation rates in the United States continue to show signs of acceleration amid an uncertain price outlook for the cryptocurrency market.
The US Department of Labor reported Thursday that the consumer price index (CPI), the most widely used indicator to track inflation, grew 7.5% from a year earlier. The index rose 0.6% in January after a similar rise in December, the government agency said.
The annual increase exceeded the expectations of economists, who estimated a rate closer to 7%. The figure also represented the fastest increase since February 1982. The latest rise came after a 7% rise in December and marked the fourth consecutive month of annual increases of more than 6%, dwarfing predictions.
Markets respond to inflation report
The news did not seem particularly favorable to Bitcoin, which was extremely volatile. The flagship cryptocurrency, which for many investors represents a hedge against inflation due to its limited supply, It dipped below $43,500 after the announcement before soaring above $45,000.
In the past few months, US inflation reports have benefited from rising prices in the digital asset market. The effect was especially positive after reports of the CPI increase in October. At the time, the November announcement caused Bitcoin skyrocketed over $3,000 and set a historical price record close to $70,000.
The cryptocurrency market has experienced a sharp price pullback after reaching highs in November, despite reports of inflation, which, for some analysts, are an argument in favor of investing in risky assets such as Bitcoin.
However, the recent fluctuations and general downward trend could be a response to expectations that the US Federal Reserve (FED) will take a more aggressive stance to raise interest rates, especially in the face of the accelerating inflation scenario. . Several experts seem to agree on this point, not only in relation to the crypto market, but also to stocks.
“With another surprise jump in inflation in January, markets remain concerned about aggressive Fedsaid Barry Gilbert, asset allocation strategist at LPL Financeto CNBC. “While things may start to improve from here, market anxiety about the Fed tightening will not go away until there are clear signs that inflation is under control.”.
Share prices of technology companies and stock market futures were also negatively affected by the report. CNBC.
Concerns about the Fed’s position
The Fed has kept interest rates close to zero, a monetary policy it implemented in 2020 in the face of the COVID-19 pandemic and has maintained despite the removal of stimulus packages and accelerating inflation. Although as inflation has picked up, the central bank has proposed a rate hike.
In January, the Fed hinted at a rate hike from March during a meeting with the Federal Open Market Committee (FOMC). An increase is expected to curb inflation, which has exceeded the 2% target set by the bank.
For their part, the financial markets foresee an increase of 50 basic points, according to Reuters citing tool FedWatch of CME. However, not all analysts agree that the Fed will take such an aggressive approach. Instead, they anticipate a progressive increase in rates.
The inflationary panorama paints a little uncertain. Although some experts agree that the pace of growth will slow down in 2022 as fiscal and monetary stimuli fade and contagion from the Omicron variant decreases, some reports indicate that the The White House does not expect a decline in inflation until the end of 2022.
How much does inflation affect Bitcoin?
As for the cryptocurrency market, it appears that traders have lost their appetite in the face of expectations for Fed action. Data of Coinglass they show that in the last 12 hours more than USD $165 million in cryptocurrencies have been liquidated; $81.9 million in long positions and $86 million in short positions.
Not all analysts agree that accelerating inflation represents a beneficial factor for the prices of the main cryptocurrencies. “Inflation still has less influence on the price of Bitcoin than other speculative factors“, said to CoinDesk Scott Bauer, a former operator of Goldman Sachs who is now CEO of Prosper Trading Academy.
In his opinion, this is because the narrative of Bitcoin as a hedging asset it has not yet been widely adopted by investors. “The idea that Bitcoin is an inflation hedge hasn’t really been proven yet, it’s still somewhat theoretical.Bauer added. The analysts of Bank of America commented on something similar this week, highlighting that BTC is closer to a risky asset.
However, many agree that, in the long run, the argument from Bitcoin as a store of value asset it could be price friendly. Bauer believes that the largest cryptocurrency is more likely to go up than down in 2022. Several observers have also thrown bullish predictions, including JPMorgan, has placed a price target of USD $150,000 for Bitcoin.
Article by Hannah Estefanía Pérez / DailyBitcoin
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