The largest digital asset by market capitalization rose 3.3 percent to $44,085 on Wednesday.
Bitcoin surged above $44,000 for the first time in a week as the largest US inflation rate in four decades revived the debate over whether the cryptocurrency is a hedge against rising consumer prices.
The largest digital asset by market capitalization rose 3.3% to $44,085 on Wednesday, following the release of the Consumer Price Index, which rose 7% in 2021. This means that US inflation posted its biggest annual gain since 1982. Some market participants had speculated that the increase would be even higher, helping the rise of other so-called risk assets such as stocks.
“Inflation has been on the same line today and the Fed probably doesn’t need to accelerate its tightening, which means the outlook for cryptocurrency may be on the sidelines a little better,” said Michael Reynolds, vice president of investment strategy at Glenmede. “Given that, on a relative basis, holding cash assets becomes more attractive as the Federal Reserve raises interest rates, we anticipate that it could take some wind out of crypto asset sales.”
Cryptocurrency proponents have long argued that Bitcoin and other digital assets, as a special asset class, can act as a hedge against fluctuations in other areas of the financial market. Only 21 million bitcoins will be traded under the computer protocol that governs the issuance, although this number is not expected to be reached for several decades.
Other cryptocurrencies also rose on Wednesday after the data was released. Ether was up 4.5% to $3,375 as of 1:12pm in New York, while the Bloomberg Galaxy Crypto Index added 3.5%.
Noel Atchison, Head of Market Insights at Genesis Global Trading Inc. That Powell would raise interest rates as much as the market was lowering it because inflation was in line with expectations, not worse.”
Undoubtedly, bitcoin or any other cryptocurrency could be a good way to hedge against inflation is still up for debate, even as prominent analysts and investors tout it as such. Some argue that Bitcoin hasn’t been around long enough to better hedge inflation, while Cam Harvey, a Duke University professor and partner at Research Affiliates, has long said that it behaves like a speculative asset and is prone to cyclical failures.
“The jury is still out on Bitcoin being an inflation hedge, only time will tell,” Austin Vincent, vice president at Gullane Capital, said by phone from Memphis.
However, Wednesday’s advance was a welcome reprieve for anyone who has been watching the price drop over the past few weeks as the Federal Reserve has become more hawkish. New retail investors haven’t accumulated since the Bitcoin crash in early December, according to an analysis by Blockforce Capital that used Glassnode data. To make matters worse, most short-term market participants – who have largely entered the market in recent months – are overwhelmed with their investments. As of Tuesday, the average price they paid was above the price of one bitcoin, Blockforce’s Brett Munster wrote in a note.
There is quite a bit of resistance around $52,000, said Monster, “and until we break through it and consolidate, we may continue to see volatility in the short term.” “However, if we break above it and stay above it, the selling pressure will go away and the likelihood of new participants entering the market again increases. This could lead to an increase in prices that we have all been expecting.”