Though inflation rate and value of a cryptocurrency shall have a strong economic relation, markets have been sending out unclear messages in this turbulent year of 2022. BITmarkets summarizes factors and consequences of this year’s high inflation and moves of the major cryptocurrency, Bitcoin.
Rising prices of goods & services historically impeded economic growth, adding hurdles to expenditure, investment, and the general willingness to spend and consume.
Recently, inflation was created by macroeconomic leeches in the form of supply shortages pegged to higher demand, escalating production costs, pandemic-related fiscal & monetary stimuli, and macropolitical unrest.
All the aforementioned factors played a role in the theatre of the callous inflationary pressures since 2021. Fiscal & monetary stimuli implemented to refortify COVID-struck nations, semiconductor and energy supply shortages, price gouging and most recently, Russia’s invasion of Ukraine.
Such factors have created ten, twenty and even forty-year-high inflation across countries in every continent. As a response, central banks initiated aggressive interest rate hikes.
Nearly half of Eurozone nations witnessed double-digit inflation, with the region reaching an average inflation rate of 8.6% according to Eurostat. In the United States, inflation hit 9.1% according to official CPI data; a figure unseen since 1981.
It’s noticeable how inflation burdens the free market (unregulated) economies of today. But how does it affect Bitcoin and the crypto world?
Inflation and Bitcoin
In early 2021, Bitcoin surged to new highs towards March, while energy prices re-escalated to pre-pandemic levels. Following the Bitcoin crash in mid-2021 when Elon Musk announced that Tesla would no longer accept Bitcoin as a payment method, Bitcoin and the cryptocurrency market surged to record highs from July to October amid revitalized investor interest in digital currencies.
This occurred while nations were a victim of the resurgence of the new Delta coronavirus variant, and exacerbated semiconductor-chip shortages. The OG digital currency reiterated its value, proving once again that it’s inflation-proof and can serve as a hedge for rising prices.
November, however, presented the start of Bitcoin’s decay, losing a quarter of its value and wiping $300 billion from the crypto market in just two days after the warnings ensued that tapering could burst the crypto bubble.
It’s worthy to note what happened next. The birth & spread of the Omicron variant catalyzed the downward spiral of Bitcoin. Inflation escalated and Bitcoin was hit hard.
After an impressive recovery in the first months of 2022 which repercussed on the cryptocurrency market, the world of crypto has entered a dark stage, just like other most financial markets out there.
Russia’s invasion on Ukraine magnified the wounding impact of crude shortages. Hand-in-hand with prevalent inflation, markets collapsed and Bitcoin was no exception. A question raises itself.
ming Bitcoin? In the past, not so much, but now, absolutely. Bitcoin has evolved to become a globally-recognized asset, just like commodities, stocks, gold and government bonds.
This means that the character of Bitcoin investors is quite similar to that of other-asset investors. Today, the sentiment of both investors is affected by similar factors. To some extent, the Bitcoin investor is the same investor of other assets, with Bitcoin and other digital currencies simply representing a component of the modern-day diversified asset portfolio.
What’s next?
The World Bank warned that the measures put in place to combat inflation are heightening the risk of a global recession. As Bitcoin is now succumbed to the wider global climate, expect its price to fluctuate based on the worldwide factors which move all other markets.
Ali Daylami
Market Data Specialist
BITmarkets
BITmarkets opens up the existing cryptocurrency markets for everyone and from everywhere. BITmarkets.com is a crypto exchange providing secure, accessible, and localized services for retail as well as institutional clients. The exchange currently operates in more than 20 countries.
BITmarkets is operated and powered by Unicorn Technologies Limited, a company registered in the Republic of Marshall Islands, providing software solutions, digital asset technologies, and virtual financial assets through Peer-to-Peer network and centralized exchange platform.
For more information see https://www.bitmarkets.com/
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