U.S inflation rate just hit 7% — the highest in 40 years. The latest Consumer Price Index (CPI) report spurred a >3% and 4.5% rebound in price value for Bitcoin and Ethereum, moving their unit value above to $43,000 and $3,300.
While past trends suggest the $11 trillion gold market as the top choice for a sturdy hedge against dollar devaluation, the response of the crypto market to current inflation reveals the willingness of many to turn to cryptocurrencies this time.
This is especially true for many middle-to-high income citizens looking to protect their cash balances and near-liquid investments against value erosion. Bitcoin, Ethereum, and the likes with over 160% value growth in 2021, now stand a better chance as a suitable alternative against fiat value loss for the average American investor.
The latest Consumer Price Index chart reveals energy (33.3%) as the biggest cause of the inflation, followed by housing (4.1%), food prices (>6%), vehicles, and medical care services (>2%). The US has experienced growing gasoline scarcity since Biden shut down local exploration in favor of importation.
Fed’s Propose Austere Control Measures
The US Federal Reserve System disclosed in November that it expected a further increase and has already earmarked steps to put such a surge in check. Key among these steps is the hiking of interest rates to cut back on increased borrowing during the period.
The regulatory body also mentioned that it may dispose of a sizeable chunk of government-held bonds to the tune of >$8 trillion to mop up excess funds from the public.
The Fed, however, has repeatedly maintained that cryptocurrencies are risky assets. With the potential for citizens to drift to crypto assets, it may choose to free up its balance sheet reserves, driving Treasury yields higher and luring investors away from cryptos.
Crypto Hedging: A growing trend
According to Glassnode, the latest increase brings temporary relief for Bitcoin, which has seen a drought of retail investors since last month. The current downtrend had left many recent investors anchored around the $52,000 resistance, below the water on their investment capital.
With the predicted rise in inflation rates, many like MicroStrategy’s Michael Saylor who maintains that BTC Will Be a $100 Trillion Market Cap Asset have argued that Bitcoin is matured to serve as a hedge against the dollar, at par with gold.
This position, opponents believe, is still too early to tell with its high risk and volatility, which has made old-time billionaires write it off as a mere speculative asset.