Inflation is a big issue in many countries right now. Energy and food costs are rising sharply at the moment. The price of essential products is a serious problem for many people. FIAT currencies such as the euro or dollar lose their value when inflation hits. That should benefit Bitcoin and cryptocurrencies in general. Is inflation bad for Bitcoin price?
What is inflation?
Inflation occurs when there is an increase in the price of goods and services. It arises when there is an increase in money circulation compared to the global country’s wealth. This devaluation of money leads to an increase in the price of products compared to a previous period.
By definition, inflation means “an average increase in various prices”. Individual price increases for individual products do not yet indicate inflation. It is a dynamic, ongoing process. Over time, people with the same amount of money can afford less and less. The purchasing power of money decreases.
How bad is inflation Today?
In the USA, we are currently seeing the highest inflation rates for several decades around 8.5%. In March 2022, inflation in Germany was 7.3%. This is the highest value for 40 years. Already in November, it reached the 5% mark, which happened for the first time in 29 years.
Inflation rose to 5.8% throughout the euro area. However, it is even higher in the USA at 8.5%. According to the US Federal Reserve (FED), the reason for the high inflation is the start of the economy after the COVID-19 lockdowns. However, this does not explain how all price increases. The policy of low-interest rates over the last few years with the sharp increase in the money supply also plays a major role.
How does Bitcoin Price react to inflation?
The Bitcoin price has experienced a weakening in the last 3-4 months. After hitting an all-time high of $68,000 in November 2021, Bitcoin fell almost 50% to end up at $35,000 in February 2022. After that, the Bitcoin price recovered slightly, but could not rise massively in the following weeks despite inflation.
There are currently no signs of a major bull market for Bitcoin in times of inflation. In the last few weeks, we’ve seen it drop back down from $47,000 to $40,000. The future of the Bitcoin price is currently uncertain.
Is Inflation Bad for Bitcoin Price?
The debasement of FIAT money through increased inflation usually causes the value of other assets like Bitcoin to increase relative to FIAT currencies. Accordingly, the Bitcoin price should benefit from the increased inflation in recent weeks.
Assets in particular that express value stabilization, such as gold, gain in value in times of inflation. Therefore, gold is considered important protection against inflation. Bitcoin has also been discussed as an alternative store of value for some time. Like gold, Bitcoin is finite, which stabilizes the value of the asset Bitcoin.
Why are Bitcoin prices falling despite inflation?
The Bitcoin price has been falling in recent weeks despite inflation. This is because the connections are more complex. Central banks in the US and Europe are discussing raising interest rates to counteract inflation. This would make credit more expensive and counteract the rise in prices.
However, this also ensures that risk investments are reduced. This news hurt the Bitcoin course. Less venture capital means less investment in Bitcoin. Investors have reacted in recent weeks and sold Bitcoin. Furthermore, the increased inflation means a mood of the crisis in the financial markets. This also ensures that investors sell Bitcoin despite inflation in order to have more money available. This lowers bitcoin prices.
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