Bitcoin Price Spikes, Shrugs Off Hot US Inflation Data
Bitcoin’s price rose on Friday despite data revealing that U.S. inflation had accelerated, defying typical market expectations that higher inflation would pressure risk assets.
Bitcoin Trades Near $79,000 Amid Inflation Surprise
The largest cryptocurrency by market capitalization was recently trading close to $78,749 after jumping 2% over a 24-hour period. At one point on Friday morning in New York, bitcoin rose as high as $79,607.
The price spike came after the release of August consumer price index data showing U.S. consumer prices accelerated, reinforcing expectations that the Federal Reserve will raise interest rates at its meeting next week.
Core Inflation Exceeds Forecasts
The consumer price index, excluding food and energy, climbed 0.3% in August from a month earlier, which was higher than expected. Inflation in the U.S. has been difficult to tame due to the war with Iran, which has lifted oil prices, in turn raising the costs of food, gasoline, and other goods.
Higher inflation typically means the Federal Reserve will raise interest rates, which in turn could stop bitcoin’s price climbing higher. According to CME’s FedWatch tool, traders think there is an 85% chance interest rates will be higher by next week.
Fed Policy Outlook and Bitcoin’s Rate Sensitivity
Bitcoin has typically performed well in a low interest rate environment because it means people can buy more of the cryptocurrency with increased liquidity. The Federal Reserve will meet next week and reveal what it will do with borrowing costs.
Federal Reserve Chairman Kevin Warsh, who took the helm in January, last month gave his first speech as head of the U.S. central bank and said he had more work to do
to fight inflation.
Political Context: Affordability Crisis and Midterm Elections
The U.S. is currently in the grips of an affordability crisis and rising oil prices are a hot topic ahead of the midterm elections. U.S. President Donald Trump has reassured voters that prices will get under control and repeatedly put pressure on the central bank to lower interest rates.
Recent Catalysts: Regulatory Clarity and Treasury Policy
Bitcoin in August had its biggest run in years following positive regulatory news and an announcement from the U.S. Treasury. Treasury Secretary Scott Bessent announced the department would double the size of its long-dated bond buybacks, helping non-yielding assets like bitcoin and gold. The cryptocurrency then benefited from President Trump urging lawmakers to get key crypto legislation, the Clarity Act, over the line.
This post first appeared on Bitcoin Magazine and is written by Mathew Di Salvo.
