Thursday, October 5, 2023

Inflation Sensitivities in BTC


Bitcoin begins to behave like a real asset, that is a good thing.

So far, the Federal Reserve’s actions have had a significant impact on the Bitcoin market, resulting in enormous sell-offs.

The Federal Reserve is considering four interest rate increases in 2022. This has sparked concerns about how Bitcoin will do in a rate-hiking environment.

A recent analysis demonstrated that Bitcoin’s recent sensitivity to inflation is an exceptionally bullish sign. In contrast to its poor performance in the last two months. Inflationary assets, like Bitcoin, become more like inflationary assets as interest rates rise.

What will become of Bitcoin if interest rates rise?

In the newest CoinShares Digital Asset Outlook study, CoinShares attempts to address this question.

There is now an understanding among markets. This is the inflation is a possibility after nearly a decade with extraordinary levels of quantitative easing (QE). In addition, the Federal Reserve is concerned about this. Where it has prompted it to rethink the timing of the reduction of QE.

For this year, the Federal Reserve is considering four rate hikes. Instead of the two it initially planned for 2021 in order to combat inflation.

In 2015, the interest rates were raised by the Federal Reserve. Bitcoin surged 51% in just six months. As interest rates rose, more consumers turned to Bitcoin as a safe haven from volatile markets.

Analysts at CoinShares, however, anticipate that this time around Bitcoin will not follow the same pattern.

When it comes to price movements and inflation, we believe Bitcoin has matured greatly since then, according to the research.

Because of this, we need to look back at earlier instances of rate hikes. For us to get a sense of how Bitcoin would perform.


The long period of declining or relatively low interest rates, CoinShares discovered five periods. It is most similar to the present day. It was a surprise to see gold and other industrial commodities perform so consistently. The recorded time was in December 1976, December 1986, February 1993, and June 2004.

This digital currency bitcoin is priced in US dollars. However, it has a limited supply like gold.

Inflation and the growing likelihood of further rate hikes prompted a steep decline in the value of Bitcoin in December 2021 and January of this year. The price falling by almost 30% from its peak levels. Any future interest rate increase will also cause its price to fall. Each consecutive increase triggering a less severe dip in its value.

Bitcoin’s Value

After a time of market instability, the price of Bitcoin is projected to surge dramatically. Most real assets have reacted similarly over similar interest rate cycles. The strength of the U.S. dollar has an inverse relationship with Bitcoin.

In other words, the dollar has gone through moments of significant volatility and has plummeted by an average of 7%. This happened over the course of a year after periods of rate hikes.

The Federal Reserve raises interest rates too aggressively. That is why CoinShares anticipates the US dollar to undergo a similar decline this year.

Alternative investments are expected to receive a portion of the market’s assets. Bitcoin being the most popular among them. Inflationary pressures can be mitigated by its resilience to censorship and capacity to evade the Federal Reserve’s long arm. Despite rising inflation and the decline of the dollar, CoinShares believes that other real assets, like as gold, would follow suit. It will also experience periods of unrestrained expansion.

Ivan Cruz
Ivan Cruz
Ivan Cruz is a writer for Cryptoconstellation. He has his Masters in Applied Research in Economics & Business. Ivan has been trading crypto for the past 7 years himself and feels it is his duty to bring you all the latest news.

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