Bitcoin Surges as US Inflation Rises

Bitcoin, the world’s largest cryptocurrency, experienced a surge in price following the release of the US Department of Labor’s latest Consumer Price Index (CPI) data for February 2023. The CPI, which measures the average change in consumer prices for a basket of goods and services, rose 0.4% last month on a seasonally adjusted basis. The all-items index denoting inflation increased by 6% over the last year, with the Labor Department noting that this was the lowest 12-month increase since September 2021.

The news of rising inflation had a mixed impact on conventional markets, with volatility being reported. However, the cryptocurrency markets reacted positively, with Bitcoin and Ether experiencing surges in price, according to data from CoinMarketCap. This suggests that investors are turning to digital assets as a potential hedge against inflation.

The CPI is calculated by the Bureau of Labor Statistics and is used as an indicator of inflation. It reflects the spending patterns of consumers on items such as food, housing, transportation, clothing, medical care, and recreation. The index is used to adjust wages, benefits, and social security payments for inflation, measure economic performance, and set monetary policy.

The US Labor Department’s statement notes that the shelter index was the largest contributor to the monthly all-items increase, accounting for 70% of February 2023’s CPI increase. Indexes for food, recreation, household furnishings, and operations also contributed. The food index increased by 0.4% last month, while the food at home index rose 0.3%. The energy index decreased by 0.6%, while natural gas and fuel oil indexes also declined in February.

The rise in inflation has been attributed to a number of factors, including supply chain disruptions, increased demand for goods and services, and rising energy costs. These factors have put pressure on businesses to increase prices, which has contributed to the overall rise in consumer prices.

The news of rising inflation comes at a time when the global economy is still recovering from the effects of the COVID-19 pandemic. Many countries are still grappling with high levels of unemployment and reduced economic activity, which has led to concerns about the sustainability of the recovery. The rise in inflation adds another layer of uncertainty to an already challenging economic environment.

In conclusion, the rise in inflation has had a mixed impact on financial markets, with cryptocurrency markets experiencing a surge in price. This suggests that investors are turning to digital assets as a potential hedge against inflation. While the rise in inflation is a concern, it remains to be seen whether it will have a significant impact on the global economy in the long term.

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Bitcoin Price Falls Below $20,000 Following US Jobs Report

The US added 263,000 jobs last month, according to a job figures report released by the Labor Department on Friday.

It was the slowest month of hiring in 18 months, indicating the hot job market is cooling slightly as the Federal Reserve tries to restrain the economy enough to tame the worst inflation in four decades without causing a recession.

The jobs number reveals a significant slowdown in hiring from August when the U.S. added 315,000 positions. The unemployment rate dropped to a 50-year low of 3.5% in September as employers continued to hire from a shrinking pool of workers. The labor participation rate dropped slightly, indicating that fewer people are working or looking for jobs.

The data shows that the labor market remains tight, with the rate of joblessness falling to a five-decade low. In the past few months, the job market has been weakening, with the average monthly job gains shrinking from about 530,000 a month at the beginning of the year to 370,000 in June.

Crypto prices plummeted following the new job figures reported by the Bureau of Labor Statistics. Bitcoin fell below $20,000 following the news, losing about 2% in the last hour to trade at $19,623, according to data from CoinMarketCap. The drop signals that hiring remains too strong for employers’ tastes. The strong monthly hiring figure implies that the Federal Reserve is likely to keep hiking interest rates sharply as it moves to slow down hiring in its efforts to squash high inflation.

Paul Craig, portfolio manager at Quilter Investors Ltd, commented about the development: “With this jobs report it seems clear we are on course for another significant hike from the Fed, with the market pricing in a 75 [basis point] rise in interest rates at its next meeting.”

In its epic battle to tame inflation, the Fed has raised its benchmark interest rate five times this year. The Central Bank is aiming to slow economic growth enough to reduce annual price increases back towards its 2 percent target. But it has a long way to go. In August, one key measure of year-over-year inflation, the consumer price index (CPI), amounted to 8.3 percent. Traders are waiting for U.S. inflation data due on Thursday next week.

Image source: Shutterstock

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Bitcoin price dips under $60K as Dollar Strength Index reaches 16-month highs

Bitcoin (BTC) logged its worst daily performance since September as BTC price slid by 10% to under $59,000 on Tuesday. On the other hand, the U.S. dollar jumped to its best level in sixteen months after spending across the American retail sector grew despite persistent Covid-19 fears and inflation concerns.

The BTC price established an intraday low of around $58,600 on Coinbase, only to retreat higher to reclaim $60,000 as its psychological support. Its move downside appeared as U.S. President Joe Biden signed the $550 billion infrastructure bill into law, including new tax-reporting requirements for cryptocurrency users.

Stronger retail data

Meanwhile, the dollar continued its prevailing bull run smoothly as sales at the U.S. retail stores rose by 1.7% in October versus 0.4% in the previous month. That provided another evidence — after an excellent Nonfarm Payrolls report last week — that the U.S. economy has been rebounding strongly from the Covid-19 lows.

As a result, investors raised their bids on the dollar, anticipating that the Federal Reserve would accelerate the tapering of its $120 billion a month asset purchase program, leading to earlier-than-expected rate hikes, which remained near zero since March 2020. 

The U.S. dollar index (DXY), which measures the greenback’s performance against a basket of top foreign currencies, touched an intraday high of 95.821 on Nov. 16, its highest level since July 2020. Conversely, Bitcoin, which rallied strongly against a lower interest rate environment throughout 2020 and 2021, retreated.

DXY weekly price chart. Source: TradingView

More gains ahead for the dollar

Analysts anticipated the dollar to continue its growth higher in the coming months ahead, with market analyst Scott Melker predicting DXY to reach 97.50.

At the core of Melker’s bullish outlook was a “double bottom” setup.

In detail, Double Bottoms appear when the price forms two low points on a similar horizontal level to represent a potential bullish reversal. A bullish confirmation comes when the price breaks above a specific resistance level — a high point between the two bottoms — to target level at a length equal to the pattern’s maximum height.

So it appears, the U.S. dollar index has been breaking out of a similar Double Bottom setup, as shown in the chart below.

DXY daily price chart featuring double bottom setup. Source: Scott Melker, TradingView

Bitcoin grapples with a mixed outlook

Bitcoin has more than doubled its prices in 2021 amid growing concerns about inflation. Nigel Green, chief executive of DeVere Group, noted that the cryptocurrency may keep on surging in value at least until the second quarter of 2022, citing the U.S. consumer price index’s (CPI) recent climb to its three-decade high.

“This latest data out of the U.S. will only compound global fears about inflation as price pressures run hot around the world,” he noted, adding:

“In this inflationary period, Bitcoin has outperformed gold, which has been almost universally hailed as the ultimate inflation hedge – until now.”

BTC/USD daily price chart. Source: TradingView

Vijay Ayyar, head of Asia Pacific with crypto exchange Luno in Singapore, called Bitcoin’s ongoing correction a “healthy pullback,” especially after its 175%-plus year-to-date price rally to $69,000.

“It would be unusual to keep moving up without corrections,” he noted.

On the other hand, Joel Kruger, a currency strategist at LMAX Group, said that a tighter Fed policy would start weighing on the broader market, hitting the riskiest assets the hardest, a reason why Bitcoin and the rest of the crypto market has been retreating against a rising dollar.

Related: Bitcoin will peak at $253K, Ethereum at $22K this cycle if 2016 halving bull run repeats

Martha Reyes, head of research at Bequant, a digital-asset firm, also called Bitcoin “a risk-on investment,” stating that people would want to raise cash from the most profitable assets in times of stress.

Bitcoin was trading at $60,625 at the time of writing. 

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.