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Will this inflation shock spell trouble for Bitcoin’s bull market?

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Financial markets are under pressure due to the inflation shock in the USA. Yesterday it was announced that inflation was higher than expected in January, lowering expectations for rate cuts in 2024. Following this news, the Bitcoin price initially crashed, but has now more than recovered.

At the time of writing, Bitcoin price was at $51,883, suggesting that the spot Bitcoin ETFs and the upcoming halving are more important than the negative macroeconomic data.

Financial market under pressure, Bitcoin stable

Bitcoin is remarkably stable compared to the rest of the financial market, which is mostly in the red today. In Asia, most stocks started the new trading day with declines. Stocks in South Korea, Japan and Australia are not doing well today.

Following news of higher-than-expected inflation in the US, market interest rates on US Treasury bonds shot up.

The market now expects the US Federal Reserve’s first interest rate cut only later this year. After all, inflation is still too high and is cooling down less quickly than expected. Furthermore, the American economy continues to do well.

In short: The US Federal Reserve seems to have no reason to cut interest rates at the moment. At least that’s how the market judged the inflation data yesterday, causing US Treasury yields to rise and the US dollar to gain ground against other fiat currencies.

Among other things, the Japanese yen broke the 150 per dollar mark for the first time since November. Immediately afterwards, Japanese government official Masato Kanda announced that his country was ready to intervene and support the Japanese yen if necessary.

Does High Inflation Put Pressure on Bitcoin Price?

Make no mistake: higher-than-expected U.S. inflation is a negative force for Bitcoin, at least in the short term. However, it is not the only force determining Bitcoin price, so we may see the bullish momentum continue in the coming days.

In my opinion, this inflation data can have a positive impact on the Bitcoin price in the longer term. Why? Because higher inflation now means that the US Federal Reserve will only lower interest rates further.

That puts further pressure on the U.S. government because higher interest rates increase its annual interest payments on the $34 trillion in total debt. As a result, government deficits are rising faster and they have to take on more debt (read: create money) to keep things running.

This will further reduce confidence in the US dollar in the long term and, in theory, this is a good development for the Bitcoin price.

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