FX.co ★ Bitcoin rallies on high US inflation

Bitcoin spiked above $ 44,000 on Wednesday after US inflation hit its highest level in four decades. This rekindled controversy over whether crypto is a hedge against rising consumer prices.

BTC gained 3.3% and traded at $ 44,085 immediately after reports indicated that CPI rose 7% in 2021. That was the largest increase since 1982. Some market participants said it will go higher, which will raise risk appetite.

"Inflation today was in line and maybe the Fed doesn't need to accelerate its tightening, which means that the outlook for cryptocurrencies may be at the margin just a little bit better," said Michael Reynolds, vice president of Glenmede. "As it becomes, on a relative basis, more attractive to hold assets in cash as the Fed raises rates, we would expect that it may take some of the wind out of the sales of the crypto assets," he added.

Cryptoy proponents have long argued that Bitcoin and other digital assets can be hedges against fluctuations in other areas of the financial market. Only 21 million Bitcoin will be put into circulation under the computer protocol that governs issuance, but that figure is not expected to be reached for several decades.

Other cryptocurrencies also rose following the release of CPI data. Ether was up 4.5% , trading at $ 3,375.

"What we're seeing today is not 'yay, inflation hedge' and all that, it's risk assets are in again because we don't think that Powell is going to raise rates as much as the market has been discounting because inflation was in line with expectations and not worse," said Noelle Acheson, head of market insights at Genesis Global Trading.

Bitcoin or any other cryptocurrency being a good hedge against inflation is still a matter of controversy even though well-known analysts and investors advertise it as such. Some argue that Bitcoin has not been around long enough to say it can be a hedge against inflation. Cam Harvey, a professor in Duke University and partner at Research Affiliates, even commented that it behaves too much like a speculative asset and is prone to periodic disruptions.

Even so, the rally on Wednesday is good news to those who saw BTC fall over the past few weeks amid hawkish Fed statements. New retail investors have not appeared since the crash in early December, while most short-term market participants who have entered the market in recent months are losing their investments.

There is a lot of resistance around $ 52,000 at the moment, but if the quote breaks and stays above it, selling pressure will disappear and it will become more likely for new participants to start entering the market again. "This could trigger the price increase we have all been expecting," said Brett Munster of Blockforce.