Key Takeaways
- Bitcoin (BTC) crashed after the US Department of Labour publishd the Consumer Price Index (CPI)
- The inflaton in the US spiked 7.5% last month, a 40-year high since 1982
- Following the crash, the bulls stepped in to push the price back up above $45,000
YEREVAN (CoinChapter.com)- The price of Bitcoin (BTC) dropped and then quickly recovered after the US Labor Department said Thursday that inflation in the country jumped 7.5% in January compared with 12 months earlier. This is a new 40-year high, the steepest year-over-year rise since February 1982. The increase exceeded the predictions of economists, who had expected a 7.3% increase.
The reaction from Bitcoin (BTC) and the crypto market to the Consumer Price Index (CPI) comes amid fears that the US Federal Reserve will implement a more aggressive monetary policy. Last month the Fed indicated that it may end Quantitive Easing (QE) in March.
“The all items index rose 7.5 percent for the 12 months ending January, the largest 12-month increase since the period ending February 1982. The all items less food and energy index rose 6.0 percent…The energy index rose 27.0 percent over the last year, and the food index increased 7.0 percent,”
the US Bureau of Labour Statistics wrote.
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Bitcoin (BTC), Ethereum (ETH) crash, bounce back
Following the publication of the inflation index, Bitcoin (BTC) shed nearly 4% on the two-hour charts. Ethereum (ETH), the second-largest cryptocurrency by market cap also shed about 3.4% on the charts.
Data on TradeView also indicate an increasing volume in Bitcoin (BTC) sales, as traders dump their holdings in anticipation of a further price crunch.
However, just as the bears were about to take control, the bulls stepped up to save the day. After falling to a daily low of $43,402, BTC jumped back to claim a new higher-low above the $45,000 mark. At the time of writing, BTC changed hands for $45,101.
Ethereum bulls painted a similar picture. After seeing ETH fall to $3,105.25, they stepped up to pump up the price. At the time of press, ETH had registered a daily high of $3,271.32, lower than Wednesday’s close of $3,239.
The US Federal Reserve had kept interest rates near zero following the latest Federal Open Market Committee (FOMC) meeting late last month. However, with inflation hitting a new high, the Federal Reserve is unlikely to continue being so lenient. Analysts expect an aggressive policy Fed’s approach to interest rates.
Goldman Sachs chief economist Jan Hatzius recently predicted a four-time rate increase by the Feds this year.
“Declining labor market slack has made Fed officials more sensitive to upside inflation risks and less sensitive to downside growth risks. We continue to see hikes in March, June, and September, and have now added a hike in December for a total of four in 2022,”
Hatzius claimed.
With the average income still remaining low, more US citizens will further turn to Bitcoin (BTC) as a hedge against inflation. Those using traditional saving methods such as banks have lost more than 7% of their purchasing power. At current inflation rates, people are likely to lose 60% of their purchasing power on their current savings within the next 10 years.
