Originally published on: November 14, 2024
Bitcoin experienced a 4.1% decline on November 14 following the release of US inflation data that slightly exceeded expectations. This correction mirrored the drop in the S&P 500 index futures, raising questions about the correlation between the two and how Bitcoin’s inflation-hedging characteristics might come into play.
While the US Producer Price Index for October showed a 2.4% annual increase, surpassing the consensus of 2.3%, it did not change the outlook for a potential interest rate cut by the Federal Open Market Committee in December. However, doubts are emerging about the Federal Reserve’s ability to sustain its rate-cutting path through 2025.
In the past, Bitcoin has thrived amid inflation concerns. Yet, recent government interventions like stimulus packages and Fed balance sheet expansions have somewhat tempered its effectiveness as an inflation hedge. With the current economic landscape shifting and potential pressures on corporate earnings looming, traders are treading cautiously.
The new administration’s initiatives, including cost-cutting measures and strategies to strengthen the US dollar, pose challenges for risk assets in the near term. Actions like the proposed elimination of the $7,500 tax credit for electric vehicle buyers have already had repercussions in the stock market, exemplified by Tesla’s stock price drop.
Furthermore, recent appointments to lead a new government agency focused on streamlining bureaucracy could lead to job losses and reduced investment funds, impacting various sectors and perhaps even Bitcoin.
Bitcoin’s role as an alternative reserve asset could face challenges if government spending is curtailed successfully, reducing the need for an inflation hedge. However, its scarcity value, censorship resistance, and transparent nature could continue to attract investors looking for a predictable asset amidst economic uncertainties.
Despite short-term fluctuations tied to inflation concerns, Bitcoin’s journey toward $100,000 and beyond may maintain its course amid broader fiscal challenges in the US economy. Investors should keep a close eye on these developments to navigate potential opportunities and risks effectively.
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