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How does inflation in the U.S. affect Bitcoin?

How does inflation in the U.S. affect Bitcoin?

The inflation rate in the U.S. has long been affecting the price of Bitcoin, which strongly correlates with the stock market. That’s why BTC always moves synchronously with it after the publication of financial news.

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Author: Artem Khomenko

Date: 21 September 2022

Category: Fresh

The “inflation rate” refers to the Consumer Price Index (CPI). This indicator shows how much the prices of goods and services have changed for the consumer. A rise in the CPI characterizes an increase in the inflation rate and, therefore, a decrease in people’s purchasing power. It means that they started to spend more.

 In 2022, the CPI is at its highest levels in 10 years. 

U.S. Consumer Price Index over the last 10 years (Investing.com)

U.S. Consumer Price Index over the last 10 years (Investing.com)

The impact of the CPI on the Bitcoin price is due to a correlation with the stock market. It would seem that higher inflation in the U.S. should cause a positive impact on BTC: after all, the weaker the traditional markets – the stronger the cryptocurrency market. However, liquidity plays a significant role. Higher inflation signals that people are running out of money faster and, as a result, are less willing to invest it.

The latest inflation report was released on September 13. The consumer price index fell from 8.5% to 8.3%. Nevertheless, the stock market, as well as Bitcoin, reacted by falling. The S&P 500 index declined by 4%, while the BTC plummeted by 11%.

BTC falling amid news of inflation in the U.S. (TradingView)

This reaction is because the actual CPI figure was 0.2% worse than expected. This caused a negative reaction in the markets, including the cryptocurrency market.

How to use the Consumer Price Index in trading:

Watch for a correlation between the forecast and the actual result;

If possible, avoid active trading during times of intense volatility.

The inflation rate is published every month. It gives an understanding of the global state of the market to evaluate the prospects for investing at the moment. It is necessary to follow financial news to rationally form an investment portfolio and be able to avoid loss of funds due to market manipulations.

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