The US Personal Consumption Expenditure (PCE) Index, which is the US Federal Reserve’s preferred inflation gauge, showed a 2.9% annual increase and a 0.2% monthly increase in December. The Core PCE also saw a 0.1% monthly increase but experienced a 3.2% yearly decline, highlighting the potential impact on Bitcoin in the coming year.
As the US inflation news broke, Bitcoin remained mostly flat, trading at $41,122.08 before marginally declining and then recovering to $41,831.43 at the time of publication. Concurrently, stock futures were slightly lower at the start of the US trading day.
The significance of US inflation to Bitcoin is evident as the PCE remains above the 2% benchmark set by the US Federal Reserve for tightening effects. The central bank’s adjustment of the Federal Funds rate to between 5.25 and 5.5% since March 2022 has led to cooling off prices in most sectors, with the exception of shelter.
Investors tend to sell risky assets when they foresee the central bank implementing overly aggressive fiat currency policies that might induce a recession. Consequently, they turn to more stable investments like government bonds. However, when the bank starts cutting rates, the prices of risky assets like Bitcoin can rise as risk appetite grows.
Moreover, the US Treasury’s upcoming announcement of its borrowing plans for 2024 on Jan. 31, 2024, can impact investor behavior. Higher government borrowing may lower the appeal of government bonds, leading some investors to choose Bitcoin as an alternative.
Furthermore, the potential approval of exchange-traded funds (ETFs) that directly track the price of Bitcoin could establish the asset as a mature investment vehicle, allowing investors to gain direct exposure to BTC price changes without purchasing Bitcoin directly. This development is expected to increase adoption, similar to how a gold ETF removed the hassle of digital asset management and encouraged more people to invest in the asset.
Hector McNeil, a co-founder of the first gold ETF, believes that a Bitcoin ETF could democratize ownership and provide a significant stamp of approval from asset managers like BlackRock, Invesco, and Fidelity. This could contribute to BTC’s price gradually rising due to its supply constraints and its properties as a store of value and a potential currency.
In summary, the relationship between US inflation and Bitcoin is complex and can have far-reaching effects on investor behavior and asset allocation. As the crypto landscape continues to evolve, understanding these dynamics is crucial for both individual and institutional investors.
It is important to note that while this news article aims to provide accurate and timely information, readers are encouraged to verify facts independently and seek professional advice before making any decisions based on this content.
