USA: Persistent inflation could slow down the rise of crypto!

The crypto market has seen strong growth in recent years. However, soaring inflation and tightening monetary policies could create headwinds.

Stubborn inflation which worries

Inflation in the United States has reached its highest level. Although slightly slowed, it remains higher than at the start of 2023. The FED and its counterparts are seeking to contain it through key rate increases.

This high inflation weighs on household budgets and eats into their purchasing power. It also makes the dollar and fixed income investments more attractive, compared to risky assets like cryptos.

Some crypto industry experts are concerned about this persistent inflation. They fear that the fight initiated by central banks will cool investors’ enthusiasm for digital currencies.

Crypto under threat from rate hikes

Faced with this stubborn inflation, the Federal Reserve and its counterparts began a cycle of key rate increases. The objective is to increase the cost of credit to slow down demand.

This significant rise in rates is attracting investors away from risky assets. Furthermore, it makes the dollar more profitable. However, a strong dollar penalizes cryptos, whose price is negatively correlated to the greenback.

Bitcoin: What about decorrelation?

However, 2021 has shown promising signs of decorrelation between bitcoin and traditional markets. Normally, bitcoin plunges with stocks during financial crises.

However, during the stock market crash, bitcoin proved resilient and outperformed the indices. Some see this as a sign of maturation, with crypto asserting itself as a safe haven uncorrelated with movements in traditional markets.

Additionally, galloping inflation makes bitcoin attractive to protect against the devaluation of fiat currencies. In the long term, the fixed number of BTC makes it an anti-inflationary asset according to its aficionados.

Despite the short-term headwinds, many therefore remain optimistic about the long-term potential of bitcoin. Even if its volatility remains extreme, it could thwart the predictions of skeptics.

Inflation and rising interest rates create headwinds for cryptos in the near term. Some experts fear this could hamper their upside potential. However, bitcoin has shown signs of positive decorrelation in 2021. Its status as an anti-inflationary digital gold could help it overcome the restrictive monetary policies of central banks. Although risky, cryptos like bitcoin have strong long-term fundamentals. Caution nevertheless remains necessary for investors in this uncertain environment.