October 2, 2022

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WHAT IS THE RELATIONSHIP BETWEEN THE CPI AND BITCOIN?

During the first days of August, we have seen how the Bitcoin numbers have been slightly turning green, even when inflation seems to be receding. More information on official trading platform system.

The leading cryptocurrency has demonstrated its capacity for strength in the face of market turmoil that is directly associated with the measures and actions taken by the US Federal Reserve, remaining at a value of 24 thousand dollars per unit.

The problems generated around the financial markets, such as the war in Ukraine, the reappearance of infections by Covid-19, and the excessive inflation in developed economies, have managed to exceed the values registered 37 and 40 years ago.

What is the CPI?

It is considered the economic indicator that measures changes in the valuation of a given country’s basic basket of goods and services in a particular period.

On the other hand, using this indicator, the population’s cost and quality of life are usually evaluated, where it can be inferred that depending on the income capacity and prices of the products, people can have specific capital to make additional investments.

There, the CPI on cryptographic investments is important; consequently, many people evaluate the market and consider the existing options to invest their money and generate income in some additional way.

When faced with a CPI that has grown, it indicates that the prices of products, goods, and services have increased, which means that the cost of living is increasingly affected, limiting the availability to diversify capital in a certain way for future investments.

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In the opposite case, where the CPI decreases, it shows that the prices of goods and services are lower, and this directly influences the cost of living, which becomes much lower, allowing income to be distributed among the various responsibilities and managing to allocate capital to invest in risky assets.

Impact of the CPI on cryptocurrencies

The crypto-asset market has been notably affected by the macroeconomic indicators that affect the economy and traditional finance and against which digital currencies were considered immune.

Cryptocurrency traders have been under relatively high levels of pressure, leading them to evaluate the various scenarios and possibilities of generating both positive and negative changes in these indicators, not easy, but it is what is currently considered to be the limitation of the digital financial market.

The data regarding inflation in the US is perhaps of high impact in terms of the development and growth of cryptocurrencies; the increase in this macroeconomic factor causes the prices of basic products to skyrocket, leading to a strangulation of the market and, in turn, the crash in the price of crypto assets.

Bitcoin has been considered digital gold, which indicates that it is an excellent option as a refuge value. It is also considered a digital asset that could serve as a tool to combat inflation due to its decentralized and limited characteristics in terms of units to be issued.

It is no secret to anyone that Bitcoin had reached outrageous all-time highs since no one expected that one unit of this digital currency could come to $67,000 when inflation rates were relatively low.

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Nobody expected that the inflation rates would reach such high levels and with it the CPI, which was disastrous for the growing development of Bitcoin, leaving it well below what it had achieved in the not-so-distant months of 2021.

The hope that Bitcoin is consolidated as digital gold, in addition to increasing the acceptance of cryptocurrencies worldwide, could generate an effect against its volatility, making this digital currency a solution to continuous inflation.

The impact of the CPI at this point in the downward trend is fundamental since it could be seen if the actions taken by the FED that has affected all the stock markets have been efficient or if a change in actions could give the necessary breathing space to the economy in general.

Conclusion

Although they had proven to be immune to this type of external factors, Cryptocurrencies have succumbed to their resistance and yielded to the market’s demands, in this case, giving up high-risk assets for more conventional ones where capital could be subject to less volatility.

Although inflation is an element of the economy that does not seem to disappear from the market at the expense of endless measures by governments to combat it, it is clear that it is essential to create strategies that minimize the effects of inflation on crypto investment portfolios.