Inflation at 9.1% deflates Bitcoin’s recovery hopes – what to expect?

YEREVAN (CoinChapter.com) – The latest consumer price index (CPI) report showed that inflation rose to 9.1% in June, the fastest 12-month pace in four decades. Energy, fuel oil, and commodities were the main contributors to the rising prices, surpassing the 8.8% Dow Jones estimate.

CPI Report beyond expectations

Altogether, the numbers countered the narrative that inflation might be peaking.

In detail, Fuel oil led the pack with a 98.5% year-over-year (YoY) increase, compared to the previous month’s 106%. Meanwhile, the costs of energy commodities rose 60% YoY, alongside gas service prices, which surged 38% in the same timeframe.

However, despite surging oil prices, airplane fares declined in June, commented the Bureau of Labor Statistics (BLS).

Among the limited number of indexes that declined in June was the index for airline fares, which fell 1.8% in June, after rising sharply in recent months. The communication index was unchanged over the month.

read the report.

Also read: Gold struggles at $1.7K, Bitcoin at $20K — no safe haven.

What does it mean for the market?

Crypto analytical platform Ecoinometrics posted a thread with their take on the situation, hours ahead of the published report. The platform suggested that crude oil prices play a substantial role in regulating inflation and stabilizing the economy.

Historically this typical cycle tends to get inflation under control: • Oil becomes expensive. • High prices plus some [quantitative tightening] QT make people poor. • This triggers a recession which hits demand. • Oil prices come down and so does inflation.

commented ecoinometrics.

Also read: Bitcoin Wyckoff accumulation setup sees BTC rising towards $30K by September 2022

Meanwhile, the economic instability grew along with inflation as recession fears intensified. As CoinChapter mentioned in the latest Bitcoin review, turbulence tends to harm risky assets, such as stock and digital asset markets.

Bitcoin drops after inflation data

Bitcoin and the equity market dropped 20% and 60%, respectively, since their 2022 peaks, influenced by the growing inflation and grim CPI reports. As a result, the flagship cryptocurrency bobbed below the $20,000 support and traded at $19,200 ahead of the New York session on July 13.

Also read: Bitcoin (BTC) to $12K next amid BTC ‘tourist’ purge.

Is Bitcoin-stock correlation still standing?

However, Genesis reported that the correlation between Bitcoin and stocks has weakened, citing the macroeconomic uncertainty.

The 30d correlation between BTC and the S&P 500 continued the downward path initiated in May. At one point, this reached as low as 0.2, a level not seen since December 2021. However, the market turbulence of the last half of the month triggered a reversal of this trend.

read the report.

Moreover, the CFA institute estimated that outside of equity market downturns, Bitcoin and the S&P 500 had had a slight positive correlation of 0.129.

Amid the last five stock market contractions, however, the correlation between bitcoin and the S&P 500 jumped to 0.258. Additionally, the correlation turned negative in only two of the past five downturns.

Also read: Bitcoin (BTC) price could fall to $10K, Wall Street survey finds.

Given the latest CPI results and the whopping 9.1% inflation, market recovery is not a given in the current quarter. Thus, risk-on assets like Bitcoin and equities might further bleed, leaving investors empty-handed.