Bitcoin is on a positive trajectory due to positive consumer price inflation. Its recent rebound can be attributed to this. However, there are two main factors affecting the price of Bitcoin. The first factor is the overall economy. Positive consumer price inflation has been the primary driver of global economic growth in recent years.
Positive consumer price inflation
The CPI report from the U.S. will reveal whether the Federal Reserve’s efforts to combat inflation have been effective. Expectations are for an increase of 8.7% year-over-year in the CPI, which excludes energy and food costs. The news sent alternative currencies tumbling, with EOS and XLM down as much as 10%.
The July consumer price inflation report showed a slowdown in the U.S., but still exceeded expectations. July’s CPI was up 8.5% Y/Y, compared to a 41-year high in June. The core CPI, however, remained flat at 5.9%, contrary to expectations of a 6.1% increase.
While the CPI is a leading indicator of inflation, it is still far from a perfect indicator. Because it takes time for newly created money to affect the economy, it can sometimes be a little behind. However, since Bitcoin trades around the clock, it tends to react to changes in central bank policy much faster than the CPI does. Therefore, this positive consumer price inflation is a good sign for Bitcoin prices. However, if central banks start printing less money, the prices may correct downward.
Despite this bearish trend, crypto markets could see a bounce back tomorrow, as traders become skittish ahead of tomorrow’s Consumer Price Index report. This report will determine whether the Federal Reserve’s interest rate hikes have had any impact on inflation. It will also likely have a strong impact on the size of future hikes.
Bitcoin’s rebound is due to positive consumer price inflation
Bitcoin’s recent rise is likely due to positive consumer price inflation. In fact, the Consumer Price Index (CPI) rose 6.2% in the year through October, which was above economists’ expectations. The positive news was greeted with a rally in risk assets, especially stocks. However, some critics say that Bitcoin’s rise is largely speculative and has periodic crashes.
The Federal Reserve is currently scaling back its pandemic stimulus measures in an effort to confront high inflation, which is causing spiraling living costs. Moreover, the risk-averse environment has had a substantial impact on crypto prices. The next batch of inflation figures is due later this week, which may suggest that the Federal Reserve is considering a more aggressive approach to raising interest rates. In this scenario, cryptocurrency prices could plummet even further.
As of June 3, a report released by the Federal Reserve indicated that U.S. inflation had increased by 7.5% in the year to June 3. Moreover, Bitcoin’s rebound is likely due to positive consumer price inflation. Despite the rising prices, the price of the cryptocurrency is still down by more than 10% from its all-time high.
The news that the price of Bitcoin may rebound this year may have sparked a positive reaction among investors. In recent months, Bitcoin suffered because of rising interest rates in the United States, while other global policy makers are increasing efforts to combat price hikes. While these factors may not be enough to lift the price of Bitcoin, they may be the catalyst for a recovery.