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- US inflation at a 13 year high as Fed continues to buy G-secs in the open markets
- Cryptocurrencies tumble under the economic downturn and the Chinese whisper game played by Elon Musk
- Bitcoin may be used as a hedge against inflation, but it is too soon to draw the conclusion
US inflation numbers shot the roof after it touched a 13-year high in April 2021. A supply shortage and the pandemic outbreak in Asia led to rise in the cost of goods and services. Inflation currently stands at 4.2% after soaring 0.8%, matching its monthly increase in 2009 post the financial crisis. Businesses are not able to cope with the rise, and so are investors in the crypto world. Profits are being booked steadily while institutional investors continue their buying spree of cryptocurrency at most of the low levels.
Cryptocurrency and its relation with Stocks, Musk and China
Since its inception in 2009 by Satoshi Nakamoto, Bitcoin has outclassed every investment instrument in terms of volatility and alpha returns. The former is a cause of concern for many, but all love the latter. However, in turbulent times, cryptocurrencies tend to positively affect the stock markets and have taken the plunge equally.
Moreover, rampant tweets by Musk and Chinese regulators placing a ban on crypto trading within the country have not fared well with investors. Elon Musk retraced his decision to accept crypto as a medium of payment for Tesla cars. Three regulatory bodies in China have been vocal about their opinion that speculative trading is hurting investor sentiments. Inflation is just the tip of the iceberg, it seems.
Ark Investment’s mighty target of $500k for Bitcoin
After the minor crash, Bitcoin recovered 11% and stayed away from the pack of other cryptocurrencies. Cathie Wood of Ark Investment exclaimed that Bitcoin might touch $500k from the current levels to heap further praise. It would be a phenomenal rise, given it takes place anytime soon.
On the other hand, Fed has started to curtail purchasing of Government securities in the open market to keep inflation in check. Its purchase of $120 billion of assets per month might reduce as the economy continues to improve from the back of a pandemic. The Dow Jones Industrial Average and the S&P 500 lost 164.62 points and 12.15 points, respectively.
Bitcoin may not be the best hedge against inflation
Bitcoin indeed has a limited supply of 21m only, and it helps in relative pricing against the USD. The latter being in more supply relatively, it has to be pricey while the price of Bitcoin will rise sharply. The continuous infusion of USD by the government has led to the rise of Bitcoin price by 250% last year.
Inflation hedging via Bitcoin is quite early to comment on as the economy is still reeling under the pandemic. It will take ample time to study and analyze the economic situation that drives investors in the crypto world.
Steve Anderson is an Australian crypto enthusiast. He is a specialist in management and trading for over 5 years. Steve has worked as a crypto trader, he loves learning about decentralisation, understanding the true potential of the blockchain.
