Experts explained how the rise in consumer inflation in the United States is related to cryptocurrency quotes and why a decrease in purchasing power can lead to a collapse of the digital asset market.
In the afternoon of January 12, the price of bitcoin rose sharply to $ 44 thousand. This happened after the US Department of Labor published data on a record growth (7%) over the past 40 years (7%) in consumer inflation at the end of December 2021. At 19:55 Moscow time, the first cryptocurrency is trading at $ 43.6 thousand. During the day, the asset has risen in price by 5%. Experts from RBC-Crypto explained why bitcoin reacted with growth to the publication of data on record inflation in the United States and what to expect from cryptocurrency in the future.
The flip side of inflation
The cost of bitcoin really rose sharply after the publication of data on record inflation in the United States, says Mikhail Karkhalev, financial analyst at Currency.com crypto exchange. In his opinion, the reaction of cryptocurrency quotes to the rise in inflation is obvious, since during such periods, risky assets are precisely the instruments that provide the highest returns to investors.
However, there is another side to inflation growth, the analyst explained. According to him, a record increase in inflation in 40 years will provoke a rapid and aggressive tightening of monetary policy in the United States, which will lead to a deep correction in the markets of risky assets for a long time. If the measures taken by the regulators cannot contain the growth of inflation, then against this background, bitcoin is able to continue to grow, Karkhalev predicted.
The situation repeats itself
A similar paradox has already occurred in March 2020, explained Nikita Soshnikov, director of the Alfacash cryptocurrency exchange service. He recalled that then Bitcoin collapsed after the stock market (the asset price fell below $ 4 thousand), but then the cryptocurrency quickly recovered and outstripped the stock market in terms of growth.
The reason for this is that investors consider bitcoin, on the one hand, as a high-risk asset designed to diversify the investment portfolio, and on the other hand, as a hedging instrument designed to protect against inflation, the expert explained.
“I believe that high inflation will attract more investors to the highly profitable, but also high-risk cryptocurrency market, which will have a supportive effect on the bitcoin rate,” Soshnikov predicted.
The director of the cryptocurrency exchange service Alfacash warned that a strong rise in the price of bitcoin against the background of rising inflation in the United States should not be expected. To return the cryptocurrency to a powerful growth cycle, fundamental factors are needed, which are not yet available, Soshnikov argues.
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