Bitcoin heads towards $60K after U.S. inflation report shows another spike in consumer prices

Bitcoin heads towards $60K after U.S. inflation report shows another spike in consumer prices
Source: John Loo

Key Bitcoin takeaways

  • Bitcoin makes a move towards $60,000 as inflation concerns grow among investors.
  • The upside target appears after the U.S. Consumer Price Index shows another monthly spike.
  • Meanwhile, the Federal Reserve looks ready to begin tapering its $120 billion asset purchasing program starting mid-November.

Yerevan (CoinChapter.com) — Bitcoin (BTC) rose Wednesday as the U.S. dollar and bond yields weakened following the release of September’s inflation report in the U.S.

In detail, the BTC/USD exchange rate rallied over 3% to reach an intraday high of $57,700, thus reclaiming $57,000 as its psychological support a day after losing it. The pair’s move higher raised anticipations that it would pursue an extended run-up towards $60,000 in the coming sessions.

Inflationary pressures versus Bitcoin

The Labor Department reported Wednesday that the U.S. Consumer Price Index rose 0.4% in September versus the expectations of 0.3%. Meanwhile, the CPI rose 0.2% after bouncing up 0.1% in August, excluding the food and energy goods, logging its smallest gain in six months.

Related: Crypto market maintains a strong footing as U.S. inflation rises another 0.5% in July.

As a result, the upside move in CPI readings pushed inflation up to 5.4% on a year-over-year basis. Meanwhile, the annualized core CPI surged to 4.0%.

Cost of everyday products rise in the U.S.
Cost of everyday products rises in the U.S.

“The acceleration in total consumer inflation in this CPI report makes Fed action to curtail inflation both imperative and imminent,” noted Jason Schenker, president of Prestige Economics, in comments to Market Watch, adding:

“We continue to believe that the Fed is likely to announce a planned reduction in quantitative easing (QE) on Nov. 3.”

Q.E. tends to push Bitcoin prices higher because it provides investors adequate U.S. dollar liquidity for potential investments across broader markets. The same sentiment appeared intact during the Wednesday session as BTC rallied against the expectations of persistent inflation.

The next action: tapering

The Federal Reserve chairman Jerome Powell said last month that inflationary pressures would subside over time. Nevertheless, he acknowledged that the gravity of supply chain bottlenecks—which has boosted ongoing consumer price pressures—has caught the central bank by surprise.

His concerns echoed through the Fed’s policy meeting on Sep 21-22. According to the minutes, also released on Wednesday, the central bank officials showed a stronger consensus towards scaling back their $120 billion a month asset purchasing program.

Related: Bitcoin on track for October gains despite China ban, Fed tapering scare

In detail, the Fed would reduce its Q.E. by $15 billion a month starting mid-November, divided proportionally between Treasury and mortgage bonds. As a result, the purchases would likely conclude by June 2022, following up with rising interest rates.

That provides Bitcoin plenty of time to continue its growth, as institutional investors continue to look at it as an alternative to gold’s hedging capabilities against inflation. For instance, JPMorgan & Chase penned in its latest report:

“The re-emergence of inflation concerns among investors has renewed interest in the usage of bitcoin as an inflation hedge. Institutional investors appear to be returning to bitcoin, perhaps seeing it as a better inflation hedge than gold.”

Bitcoin was trading at $57,556 at the time of this writing.

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