Bitcoin (Bitcoin) Fell simultaneously with the US dollar, while the S&P 500 index set a record high at the opening of the market on Friday, as the Fed’s preferred inflation indicator soared to its highest level in nearly three decades.
According to data shared by the US Bureau of Economic Analysis, the US core personal consumption expenditure (PCI) increased by 0.5% in May, lower than the 0.6% expected.
Despite this, spending increased by 3.4% year-on-year, the highest level since 1991. The Fed uses core PCI as a benchmark indicator for measuring inflation. The U.S. Central Bank has stated that it will tolerate inflation exceeding 2% before ensuring a stronger labor market recovery.
The prospect of rising inflation has contributed to a bullish rebound in volatility across risky markets in 2020, including Bitcoin and the US stock market.
Investors see them as better safe havens because the Fed chose to keep interest rates close to zero and maintain its monthly asset purchase plan of $120B to curb the impact of the coronavirus pandemic on the US economy.
However, the central bank’s policy ultimately pushed down U.S. bond yields and at the same time damaged global demand for U.S. dollars, thereby shifting investors to higher-risk safe-haven alternatives, including Bitcoin.
But after the latest PCI reading, the flagship cryptocurrency fell, suggesting that investors chose to ignore its safe-haven narrative about the risks of China’s latest crypto ban, as well as U.S. speculation Strict regulations will be imposed Generally speaking, in the field of cryptocurrency.
After the opening of New York on Friday, the BTC/USD exchange rate fell to an intraday low of $32,350. At the same time, Bitcoin’s largest safe-haven rival, gold, recorded an early rise after a high core CPI reading. The August Comex gold futures rose 0.73% to US$1,789.70 per ounce in early trading.
Investors also left out the so-called safest safe haven, the dollar. As a result, the US dollar fell 0.33% to 91.525 against a basket of foreign currencies in early trading on Friday. Later it rose to 91.749.
Mercuryo’s co-founder and CCO Alexander Vasiliev said that under the prospect of rising inflation, the demand for US dollars from corporate and retail investors will remain weak. Instead, they prefer to hedge assets with low depreciation potential. He explained:
“Although Bitcoin has won the debate as a suitable asset in this regard, at this time, its current plummeting price will favor gold. Therefore, investors may prefer the latter to the former. These effects on prices will be in the future. In a few days and weeks, inflation data for asset classes will become more apparent.”
With President Joe Biden’s latest stimulus transaction worth 1T US dollars, investors’ attention turned to the Wall Street stock market, and Bitcoin also fell. The Standard & Poor’s 500 Index surged 0.27% to a record high of 4,280.55. The technology-focused Nasdaq Composite Index rose 0.1%.
Fed’s mixed signal and Bitcoin
Francesco Sandrini, senior multi-asset strategist of fund manager Amundi, statement Inflation data will continue to rise in the coming months. At the same time, it is difficult for the market to find confidence in how to protect them from rising consumer prices, especially when Fed officials send mixed signals on whether inflation should lead to tightening of monetary policy.
For example, Federal Reserve Chairman Jay Powell said that the recent surge in inflation in the U.S. economy may obliterate long-term returns on stocks and bonds and is “temporary” in nature. But St. Louis Fed President James Brad said on Thursday that inflation may continue to rise in the next few trading days.
The Federal Open Market Committee’s latest economic forecast turned to hawks because it recommended a double interest rate hike in 2023. As a result, Bitcoin went lower after the news.
Digital asset management company CoinShares pointed out in a report released on June 21: “We are still not sure what will happen to inflation in the next 5 years.”
“But we believe that increasing Bitcoin and other physical assets is a prudent measure to protect the portfolio from the tail risk of out-of-control inflation,” the company added.
Vasilyev pointed out that in the coming months, a strong anti-inflation narrative will keep investors interested in Bitcoin, adding:
I believe that the goal is to recover to US$40,000, and investors hope to break through the previous ATH of US$64,000 in the medium to long term.