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Grayscale Outlines Recent CPI Impact on Bitcoin: What to Expect for Crypto

Published July 13, 2023 2:02 PM
Omar Elorfaly
Published July 13, 2023 2:02 PM

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.

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