Bitcoin Fails To Retain Price Gains Following Robust Inflation Data

Bitcoin prices failed to rally sharply after the latest inflation data came out.


Bitcoin prices experienced some modest gains earlier today, pushing higher after a key measure of inflation reached its highest in almost 40 years.

More specifically, the The Consumer Price Index for All Urban Consumers (CPI-U) rose 6.8% during the 12 months through October, the most since the 12 months through June 1982.

The digital currency went from roughly $48,900 shortly before the report was released at 8:30 a.m. EST to $50,038.20 within 10 minutes, CoinDesk data shows.

Following this upward movement, the cryptocurrency fell back, dropping to less than $48,000 around 10 a.m. EST, additional CoinDesk figures reveal.

At the time of this writing, the digital asset has suffered further losses, dropping to as little as $47,300.

[Ed note: Investing in cryptocoins or tokens is highly speculative and the market is largely unregulated. Anyone considering it should be prepared to lose their entire investment.]

Inflation Hedge?

Market analysts have repeatedly claimed that bitcoin is an inflation hedge, emphasizing the digital scarcity that is built into the cryptocurrency’s code.

Under existing rules, no more than roughly 21 million units of bitcoin can ever be created.

This provides a stark contrast to fiat currency, which central banks could theoretically print in limitless amounts.

Over the last few years, these central banks have printed trillions of dollars’ worth of currency in an effort to provide stimulus and shore up shaky economic conditions.

A measure of the U.S. money supply, called M2, climbed more than 35% between December 2019 and August 2021.

It is impossible to know how much fiat currency central banks will print in the coming years, but the more they produce, the less purchasing power it will have, all other things being equal.

Under such circumstances, it is easy to see why many crypto enthusiasts might flock to bitcoin, which has a hard cap on total supply, in order to preserve their wealth.

However, market observers must keep in mind that bitcoin, and the broader crypto market, have been around for a rather short period of time in the grand scheme of things.

The first units of bitcoin, the world’s most valuable digital currency by market value, first came into existence in January 2009.

As a result, the digital asset has been available for purchase and sale for less than 13 years at the time of this writing.

The stock market, in contrast, has been around for hundreds of years, and the bond market has also built up some significant tenure.

Because of these considerations, market observers are working with rather limited price history when they seek to use market data to either support or refute the claim that bitcoin is an inflation hedge.

As time goes on, investors will have more data they can use, but for now, the jury is out.

Disclosure: I own some bitcoin, bitcoin cash, litecoin, ether, EOS and sol.