Are central banks inadvertently fuelling the Bitcoin bull run?

Are central banks inadvertently fuelling the Bitcoin bull run?
Source: Pixabay

Key Bitcoin Highlights:

  • Bitcoin prices are indeed positively correlated to domestic inflation levels
  • The correlation differs in terms of the magnitude vis-à-vis the status of the quantitative easing in the economy
  • Countries tapering the QE are able to control inflation and the corresponding Bitcoin prices juggernaut

PUNE ( — The unprecedented bull run for the crypto-currencies, especially Bitcoin, in the pandemic era, has brought forth challenges not only for the central banks but also for the commoner.

While the regulators face the heat of battling the after-effects of the prolonged expansionary monetary policy, they are also being sidelined by an evolving, parallel financing system that would soon mar their authority over the public money.

On the other hand, retail investors worldwide are seeking alternative avenues to safeguard the worth of their savings from the inflationary pressures arising from the mainstream financial system. This very fact has been a key propeller behind the adoption juggernaut, cryptocurrencies are savoring, around the world, in the recent past.

Let us study the relation between domestic consumer price inflation and the corresponding price of Bitcoin, since Jan 2021, for some of the major currencies, viz. the USD, Euro, GBP, JPY, and the CAD, in detail.

 United States Dollar (USD):

Inferring the data from the two charts above, the relation between inflation and BTC-USD is quite apparently, a direct one.

US inflation data versus BTC/USD
U.S. inflation data versus BTC/USD

With the US FED announcement in Jan 2021 Statement on Longer-Run Goals and Monetary Policy Strategy establishing the need to brace for higher inflation levels shortly, one can see an onset of an upward price movement for Bitcoin.

Since then, it has been a very relatable story: the higher the inflation, the higher the price of the digital asset. Even the July and august tapering of the fiscal stimulus reverberated with matching Bitcoin price corrections.

Euro (BTC-EUR):

Interest rates were maintained at record low levels to pave the way for some healthy inflation till 2021.

Eurozone inflation rate versus BTC/EUR.
Eurozone inflation rate versus BTC/EUR.

However, the new expansionary policy in July 2021, which was understood that there would be a phase of higher inflation levels, marked historically high figures of 3.4% in September and 4.1% in October 2021.

Vis-à-vis, the upwards movement of the Bitcoin per Euro in Q2 are evident from the chart above, where BTC-EUR rebounded due to internal factors for the first time. To date, we stand at a point where Christine Lagarde, the ECB chief, is reluctant to roll back the loose money in the economy, giving a visible safe run for Bitcoin in the near term.

Great British Pound (GBP):

The co-relation is pretty positive regarding the price of BTC/GBP and inflation levels in the U.K. 

U.K. inflation data versus BTC/GBP
The U.K. inflation data versus BTC/GBP

The price trajectory replicates the inflation figures, where even the minute dips and surges are in conjugation. In addition, high energy prices and supply chain jitters added fuel to the already stressed growth environment, resulting in inflation figures like never before.

While the ECB, in its latest meeting, agreed to maintain the interest rates at 0.1%, citing the inflation overshoot as ‘transitory,’ Bitcoin is cementing its place as the alternate store of wealth for the commoner.   

Canadian Dollar (CAD):

Canada is a rather bold case wherein the policymakers have been advocating the adjustments in the quantitative easing package since April 2021.

Canada inflation rate versus BTC/CAD
Canada inflation rate versus BTC/CAD

Still maintaining the bank rates at 0.5%, Canada started to put curbs on the stimulus package, tapering growth for the Bitcoin against the CAD. While inflation is still at record levels, the rising value of the Bitcoin per CAD is losing luster. The correlation between the BTC-CAD is positive but very weak.

Japanese Yen (JPY):

Maintaining that the stressed economy needed a loose monetary policy for now and short term in the future, Japan has finally reached positive inflation figures after a long period of deflation.

Japan inflation rate versus BTC/JPY
Japan inflation rate versus BTC/JPY

With the Bank of Japan dismissing Bitcoin as foreign to its economy and not worth attention, for now, high numbers of retail adoption is helping the comparative price of the BTC-JPY pair skyrocket. 

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