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Bitcoin Beat Record Rise in Inflation — So What Now?

19 July 2022

The consumer price index for the 12 months ending June 2022 hit a grim but predictable milestone last week, rising at an annualized rate of 9.1% as CBS reports:

“The consumer price index, a broad measure of everyday goods and services related to the cost of living, soared 9.1% from a year ago, above the 8.8% Dow Jones estimate. That marked the fastest pace for inflation going back to November 1981.

Excluding volatile food and energy prices, so-called core CPI increased 5.9%, compared with the 5.7% estimate. Core inflation peaked at 6.5% in March and has been nudging down since.

On a monthly basis, headline CPI rose 1.3% and core CPI was up 0.7%, compared to respective estimates of 1.1% and 0.5%.

Taken together, the numbers seemed to counter the narrative that inflation may be peaking, as the gains were based across a variety of categories.”

Many in the crypto community are worried about increased downward pressure on BTC and other crypto assets. Prior to the CPI print, CoinDesk reported:

“A higher-than-expected inflation print, particularly for core CPI, would validate the Federal Reserve’s strategy of combating price pressures with aggressive rate hikes and balance sheet runoff, bolstering the dollar rally and bringing renewed selling pressure to risk assets, bitcoin among them.

Fed fund futures show expectations for a 75 basis points rate increase later this month are fully priced in. Traders have also baked in a 50 basis point hike in September and 25 basis points raises in November and December. The central bank has raised rates by 150 basis points to the 1.5%-1.75% range since March.

A hotter-than-expected figure may also see traders scale back expectations for Fed rate cuts next year. At press time, rates traders are pricing in an easing of monetary policy in the second half of 2023 to reverse the tightening cycle’s negative impact on economic activity.”

We think it’s important to maintain some perspective, though. Between January 2020 and today, Bitcoin has gone from $8,000 to $21,000, adding more than 250% in value to portfolios in spite of a 60% runoff since last year. By comparison, the S&P 500 during that same timeframe went from $3,200 to $3,800, a comparatively pedestrian return of only18%.

We can debate whether crypto is a hedge against inflation all day, but it’s worth asking ourselves a larger question: If you believe in crypto — where do we go from here?

Because, despite the red ink since October, crypto is still outperforming other financial assets and inflation.