Why Bitcoin Prices Are Higher Following July CPI Inflation Reading

Why Bitcoin Prices Are Higher Following July CPI Inflation Reading

Bitcoin BTC/USD prices gained 3.7% on Wednesday and Ethereum ETH/USD prices gained 8.8% amid a rally in risk assets following the July consumer price index (CPI) inflation reading.

Ripping Risk Assets: Some Bitcoin bulls have argued that the cryptocurrency is an inflation hedge or a digital version of gold. However, market price action so far in 2022 suggested Bitcoin has been the exact opposite. Instead of serving as a store of value as inflation has soared, Bitcoin prices have plummeted. Investors have dumped risk assets in response to inflation throughout the year, but signs inflation may have peaked triggered a relief rally in risk assets on Wednesday morning.

Related Link: CPI Inflation Slows To 8.5% In July, Stocks Rip Higher — But Are Wages Keeping Up?

The headline CPI rose 8.5% in July, down from 9.1% in June. The July CPI reading also came in below economist estimates of 8.7%. The SPDR S&P 500 ETF Trust SPY traded higher by nearly 2% on Wednesday along with crypto prices.

Relief Rally: The bullish reaction by Bitcoin came as no surprise to GlobalBlock analyst Marcus Sotiriou.

"CPI data will play a huge part in determining whether we will continue to see crypto users indeed decline or not over the coming months," Sotiriou said Wednesday morning.

"CPI is expected to be 8.7% - if the released number is lower than this figure, I expect a rally for crypto and equities to ensue."

Related Link: Crypto Analyst Still Bullish On Bitcoin Miners, Names 4 Top Stock Picks

Investors even shrugged off an abysmal second-quarter earnings report from crypto exchange Coinbase Global Inc COIN, and the stock rallied 5.7% on Wednesday morning on the bullish inflation news.

On Tuesday afternoon, Coinbase reported a $1.1 billion net loss in the second quarter and said its revenue dropped 64%. Coinbase also said it will be laying off 18% of its workforce.

Benzinga's Take: Falling inflation rates are certainly good news for the economy, but interest rates will most certainly continue to rise until inflation falls back down near the Fed's long-term target rate of 2%.

Bitcoin prices have been highly correlated with the S&P 500 throughout 2022, and rising interest rates have historically pressured stock prices.

Photo: kkssr via Shutterstock

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