Prices keep rising but bitcoin still isn’t behaving like the inflation hedge it is said to be

Bitcoin golden physical coin illustration on United States Dollar banknotes.
  • Inflation concerns were further stoked Tuesday when the CPI saw its largest one-month increase in 13 years.
  • Yet bitcoin, widely viewed as a hedge against inflation, dipped lower after the CPI reading.
  • Some bitcoin bulls, however, maintain that the cryptocurrency will prove its use as a hedge against rising prices.
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Inflation concerns were stoked on Tuesday when consumer prices between May and June saw their largest one-month increase in 13 years, but bitcoin, often touted as a hedge against a weaker dollar, failed to respond in kind.

US stocks dipped at the open, while bitcoin was flat and then steadily dropped over the course of the morning and early afternoon. The price of the world’s largest cryptocurrency by market capitalization was lower by about 2%, below $33,000 for most of the day following the announcement of the CPI figures.

The asset was trading at $32,854 as of 1:10 p.m. ET Tuesday.

This has happened with past readings, as well. In May, bitcoin fell 7% on a day when CPI data showed prices rising at their fastest rate since 2008. Theoretically, with higher inflation, demand for assets that can serve as alternative stores of values to cash would rise – bitcoin among them.

“Bitcoin isn’t behaving like an inflation hedge anymore and will continue to remain heavy over expectations over higher yields,” Ed Moya, senior equity analyst at foreign exchange firm Oanda, said in a Tuesday note.

That inflation is viewed as transitory, however, could be a reason why the June report wasn’t enough of a catalyst to break bitcoin’s sideways trading, Moya added.

Bitcoin has long been heralded as a hedge against inflation mainly due to its finite 21 million supply of coins. The idea is that bitcoin serves a similar purpose to gold in protecting against reckless fiscal policies that devalue fiat currencies.

Billionaire investor Mike Novogratz once said bitcoin’s value has increased because governments are printing money like “toilet paper.”

Some bitcoin bulls, however, maintain that the cryptocurrency will still prove its purpose one day.

“Bitcoin is still a hedge for inflation in the long run for most investors,” John Wu, president of Ava Labs, the team behind the altcoin avalanche, told Insider.

He continued: “However, given the amount of new investors in the space, there are investors that think of it as a risk asset and those incremental investors may be selling in the short term as a source of fund.”

Bitcoin’s price has been rangebound since a broader cryptocurrency crash in May.

But it seems that the digital asset is holding firm at its $30,000 support level the more it gets tested, Julius de Kempenaer, senior technical analyst at technical analysis platform StockCharts.com, told Insider.

“As a result, an eventual break below this level will become more and more meaningful,” he said. “If and when this happens, $20,000 is on the cards as the next level of support to watch.”

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US stocks drop as inflation data shows prices rose more than expected in June

NYSE Trader
A trader works on the floor of the New York Stock Exchange (NYSE) in New York, U.S., March 9, 2020.

US stocks dipped at the open after key inflation data showed prices rose more than expected in June.

The Consumer Price Index increased 0.9% in June, far higher than Bloomberg’s consensus estimate among economists of 0.5%. The reading marked the largest one-month change since June 2008.

On a year-over-year basis, prices increased 5.4%, higher than economists’ expectations for a 4.9% year-over-year increase. However, June 2020 was the lowest point for Core CPI during the pandemic shutdown, so year-over-year increases are expected.

“A white-hot June CPI print has the markets jittery this morning. Stripping away food and energy, it was the highest print for Core CPI since November 1991 on a year-over-year basis, however moving forward we expect these inflation numbers to begin to cool,” said Cliff Hodge, Cornerstone Wealth chief investment officer.

Here’s where US indexes stood at the 9:30 a.m. ET open on Tuesday:

Bank earnings began this morning, with JPMorgan beating expectations as the banking giant benefited from record investment-banking fees and the release of cash set aside to cover loan losses.

Goldman Sachs also handily exceeded analysts’ estimates. Investment banking generated its second highest quarterly net revenues ever, just behind the first quarter of 2021, thanks in large part to a robust IPO market. The strong numbers in that segment offset a slowdown in Goldman’s trading business.

Although CPI came in higher than expected, a June Bank of America survey reveals most fund managers believe the global economy has reached “Peak Boom.” Month on month, 2% fewer respondents to the bank’s monthly global fund manager survey believe economic growth and inflation will rise above current predictions. Overall, 74% of fund managers still expect growth and inflation to be “above trend.”

The yield on the US 10-year Treasury gained 1.5 basis points to 1.378%.

West Texas Intermediate crude rose 0.1%, to $74.18 per barrel. Brent crude, oil’s international benchmark, increased 0.4%, to $75.43 barrel.

Gold was flat at $1,805.70 per ounce.

Read the original article on Business Insider