Bitcoin Hits $56,000 Ahead of US Inflation Data; Record High Ahead?

Bitcoin climbed Wednesday ahead of inflation data that will show if flurries of government stimulus and rising oil rates have started to increase the overall consumer prices.

Bitcoin Hits $56,000 Again

The benchmark cryptocurrency ticked up 2.58 percent, hitting a fresh two-week high of $56,340, taking a step away from its positive correlation with tech stocks.

Its rise appeared in contrast with the futures tied Nasdaq 100 that wavered between gains and losses on Wednesday. Instead, Bitcoin joined the Dow Jones Industrial Average futures, which rose 0.3 percent as investors raised bets on banking and energy sectors.

The cryptocurrency also surged despite a rise in the US 10-year Treasury note yield. It ticked up 1.562 percent on Tuesday from 1.545 percent in the previous session as investors resumed their bond sell-off. Yields rise when the bond prices fall.

This year’s steep rise in benchmark yields, which was at 0.915 percent at the beginning of 2021, has also raised investors’ expectations that the Federal Reserve would boost short-term interest rates. Combined with growing inflation expectations, investors doubt the value of the future of cash flows from tech companies.

On the other hand, Bitcoin is playing safe between risk-off and risk-on markets. The cryptocurrency has entered the balance sheets of several global companies, including Tesla, as an alternative to cash reserves. Meanwhile, many mainstream financial services, such as PayPal, MasterCard, and BNY Mellon have announced crypto-enabled services that would further attract growth to the cryptocurrency sector as a whole.

But rising yields also increase the risks of lending rate hikes, which may limit Bitcoin’s growth.

Inflation Data

US inflation will release at 0830 ET. Investors will watch the report to see whether the government’s trillions of dollars worth of stimulus packages have started to drive the consumer prices upward.

Federal Reserve officials have clarified that they would let the inflation rate rise above 2 percent. A Bloomberg survey noted that economists’ year-on-year expectation for February’s consumer price index is 1.7 percent. Meanwhile, Fed’s preferred inflation gauge, the personal consumption expenditures price index, is now around 1.5 percent.

So far, expectations of higher inflation are helping Bitcoin sustain its bull trend. The cryptocurrency proposes to act as a hedge against rising consumer prices, led by quantitative easing programs that reduce the value of fiat currencies.

Many analysts believe Bitcoin could attain a new record high in March.