US inflation has grown by 7.9% over the last year to hit 40 years high; however, a possible repeat of historical data indicates bullishness for Bitcoin.
Pseudonymous Bitcoin analyst Plan C has revealed an incoming cross in on-chain data for Bitcoin. The metric, which is the STH floor and Dormancy flow floor bottom confirmation cross, has historically has caused surges in the BTC’s value.
Source: Plan C
From the chart, anytime the dormancy flow floor crosses above the Short term holders (STH) floor, there has been an upswing in Bitcoins price. The first occurrence in January 2015 saw a massive rally as BTC moved from just below $200 to nearly $20000 in January 2018. The price surge was not as pronounced the second time it happened, moving from near $4000 to $10000.
However, at the third cross, Bitcoin’s price rallied from just beneath $6000 in March 2020 to its all-time high price of over $59000. Current on-chain data shows an incoming cross, but this is against the backdrop of growing inflation, the worst seen in more than four decades.
Crypto Market Unfazed By Rising Inflation
Consumer Price Index (CPI) data released by the US Bureau of labour statistics shows US inflation has hit a 40 year high of 7.9%. Also, the European Central Bank has revised its inflation expectations upwards while the gross domestic product (GDP) growth has been reviewed downwards. Despite both news coming out at almost the same time, the crypto market has remained resilient.
Interestingly, even before the massive fallout now seen due to the Russia-Ukraine crisis, global inflation rates had been on an upward trajectory. Inflation was fueled by two years of intermittent lockdowns and enormous money printing due to the COVID outbreak. Now, a battle between two of the world’s most significant exporters of oil, gas, grain, and fertiliser threatens to exacerbate the problem for consumers.
Despite the gloomy outlook, the crypto market remained relatively unmoved by the news. Bitcoin and Ethereum, the two largest cryptocurrencies, are down 6.6% and 5.2%, respectively. Their performance is in line with the larger crypto market, down 5.1%. This may be because the market has priced in the high inflation anticipated for some time now.
Crypto May Offer Investors Better Hedge As Government Changes Stance On Inflation
The US government has been making a widely published effort to tackle growing inflation. The Federal Reserve announced in late 2021 that it would hike interest rates several times in 2022 to curb rising inflation. In another meeting held in January, the Feds resolved that the first interest rate hike would come in March.
However, the outbreak of the war in Europe has put the Feds in a delicate position. If it tightens credit too much this year, it risks putting the economy in jeopardy and possibly causing a recession. Given this, several reports have emerged of the government saying inflation may be suitable for American citizens.
These reports have drawn the ire of citizens who have taken to social media to call out mainstream media for pushing this agender. Many believe that these media houses are in collaboration with corporate entities to water down the effect of the crisis.
Consequently, the current situation provides Bitcoin and cryptocurrencies with an opportunity to prove themselves as an inflation hedge for investors. Bitcoin is already widely considered better than gold as a hedge against inflation, and a better time may not come than now. The unfazed reaction of the crypto market and its entire mechanics will possibly attract more investors to take advantage of the tech.
Do you think cryptocurrencies offer investors the best bet to hedge against surging inflation rates? Let us know your thoughts in the comments below.
Chris is a crypto enthusiast and a firm believer in the blockchain’s ability to create a new financial paradigm. Through writing, Chris hopes to expose the intricacies of this disruptive technology and how it is beneficial to Africans and developing countries. He aims to give readers a rational and unbiased outlook of the industry by equipping them with the necessary information to make enlightened investment decisions.
