Bitcoin climbs after inflation jump rekindles hedging debate

Bitcoin climbed above US$44,000 for the first time in a week as the most U.S. inflation in four decades revives the debate about whether the cryptocurrency is a hedge against rising consumer prices.

Bitcoin climbed above US$44,000 for the first time in a week as the most U.S. inflation in four decades revives the debate about whether the cryptocurrency is a hedge against rising consumer prices.

The largest digital asset by market value rose as much as 3.3 per cent to US$44,085 Wednesday, following the release of the consumer price index, which climbed 7 per cent in 2021. That means inflation in the U.S. registered its biggest annual gain since 1982. Some market participants had speculated that the increase would be higher, helping to send other so-called risk assets such as stock higher. 

“Inflation today was in line and maybe the Fed doesn’t need to accelerate its tightening, which means that the outlook for cryptocurrencies may be at the margin just a little bit better,” said Michael Reynolds, vice president of investment strategy at Glenmede. “As it becomes, on a relative basis, more attractive to hold assets in cash as the Fed raises rates, we would expect that it may take some of the wind out of the sales of the crypto assets.”

Crypto proponents have long argued that Bitcoin and other digital assets, on account of their being an idiosyncratic asset class, could act as hedges against swings in other areas of the financial market. Only 21 million Bitcoin will be put into circulation under the computer protocol that governs issuance, though that figure isn’t expected to be reached for several decades.

Other cryptocurrencies also rose on Wednesday following the data release. Ether was up 4.5 per cent to US$3,375 as of 1:12 p.m. in New York, while the Bloomberg Galaxy Crypto Index added 3.5 per cent.