How would CPI and inflation impact the crypto market? | Credit: Shutterstock
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Key Takeaways
Grayscale’s latest market outlook highlights declining U.S. inflation midway through 2023,
Core consumer price index inflation has trended lower this year.
Moderating inflation has driven tech and crypto market rallies.
Normalizing inflation rates have been a boon to technology and cryptocurrency markets through 2023, according to the latest market outlook from Grayscale.
The cryptocurrency investment firm unpacked the influence of the latest consumer price index (CPI) data for June 2023 released in the United States on July 12, with CPI-measured inflation tipped at 3%.
Meanwhile Grayscale highlighted core inflation at 4.9% year-over-year, which cuts out volatile food and energy prices, as a better gauge of underlying price trends. This is the lowest core inflation rate since October 2021.
The data reflects a trend of renewed interest in the risk asset market according to Grayscale, highlighting year-to-date price returns on Bitcoin and top tech stocks:
Source: Grayscale Market Byte: What the June CPI Means for Risk Assets and Bitcoin
“We believe moderating inflation this year has reduced investor concerns about over-tightening by the Federal Reserve and has fueled a tech and crypto-centric rally in risk asset markets.”
Possible Boost for Bitcoin Gains
Grayscale’s report notes that moderation inflation could reduce the likelihood of the Federal Reserve continuing its efforts to tighten interest rates. This could in turn extend “gains in Bitcoin and other cryptocurrencies.
Data reflects Bitcoin showing a positive correlation with risk assets and a negative correlation with the Federal Reserve’s policy changes.
“These patterns reflect Bitcoin’s dual role as an emergent technology and an alternative to the US Dollar as a money system or currency. Improving investor risk appetite and lower real interest rates tends to weigh on the Dollar and support Bitcoin and crypto more broadly.”
Don’t Forget the Alt Coins
Grayscale’s report also suggests that Bitcoin might not be the only cryptocurrency set to gain from loosening inflation pressures in the United States.
The analysts suggest that this has led to lower investor demand for inflation-hedging instruments like BTC and a larger appetite for higher-risk tokens, seeing Bitcoin market capitalization dominance falling.
Grayscale notes Solana as a “star performer”, returning gains of 125% in 2023 and 46% through May.
“Solana is showing signs of steady recovery from setbacks such as the liquidation of user holdings by FTX and Robinhood, among other factors.
The report concludes that lower U.S. inflation and lower chances of Federal Reserve rate hikes could support cryptocurrency markets over the medium term.
Macro Events Driving Bitcoin Resurgence
Bitcoin has seen renewed interest over the past two months following news of renewed efforts to launch Bitcoin exchange-traded funds in the U.S. The world’s largest asset manager BlackRock as well as Fidelity have grabbed headlines for their latest applications for Bitcoin ETFs.
The likes of Anthony Pompliano have also suggested that Bitcoin has been sitting in undervalued territory for over a year and increased interest from Wall Street players indicates a “strong tailwind scenario” for the asset.
Omar is a journalist with a passion for unraveling the intricacies of emerging technologies. With a keen interest in AI, blockchains, cryptocurrencies and machine learning, he is fully immersed in the tech industry.
Having covered news in North America, South America, Europe and Asia, Omar stands out for his ability to describe the future of humanity using current technologies through the art of storytelling. Whether he's delving into the potential of AI to revolutionize industries or exploring the transformative power of blockchain in reshaping economies, Omar aims to captivate readers, seamlessly blending technology, economics and politics. Omar's global perspective fuels his ability to connect the dots and paint a vivid picture of the ever-evolving tech landscape.
