The U.S. Personal Consumption Expenditures (PCE) index, the U.S. Federal Reserve’s preferred inflation indicator, rose by an average of 2.9% per year and 0.2% per month in December last year. The so-called core PCE increased 0.1% monthly but declined 3.2% year-to-date, making it an interesting year for Bitcoin.
As the US trading day began, stock futures fell slightly, while cryptocurrency and Bitcoin remained mostly flat. Prior to the US inflation news, Bitcoin was trading at $41,122.08 and fell slightly before recovering to $41,831.43 as of press time.
Why US Inflation Matters for Bitcoin
PCE is still above the 2% target that the Federal Reserve uses to benchmark the effectiveness of its tightening. The central bank raised the federal funds rate to 5.25-5.5% from March 2022, which significantly cooled prices in most sectors except shelters.
People sell risky assets when they feel central banks are tightening monetary policy too aggressively, which could trigger a recession. Investors then move to more stable investments, such as government bonds, backed by the full trust of the government. If banks start cutting interest rates, the price of risky assets like Bitcoin could rise as risk appetite increases.
Read more: 7 Ways to Handle Retirement When Inflation Rises
The U.S. Treasury is expected to announce its 2024 borrowing plan on January 31, 2024. Higher government borrowing may signal that the government is willing to take more risk and make government bonds less attractive. This is because as debt increases, the likelihood of default increases. As a result, some investors may choose Bitcoin.
Why people invest in Bitcoin
The approval of certain exchange-traded funds (ETFs) that directly track the price of Bitcoin means that the asset has a chance to establish itself as a mature investment vehicle. ETFs give investors direct exposure to BTC price movements without the need to purchase Bitcoin directly.
Hector McNeil, co-founder of the first gold ETF, said adoption of Bitcoin ETFs will increase. He likens this to how gold ETFs have encouraged more people to invest in the asset while removing the hassle of managing digital assets.
“ETFs are most powerful when they provide market access to difficult-to-trade asset classes. (ETF) democratizes ownership. “Having asset managers like BlackRock, Invesco, and Fidelity is a huge endorsement.”
Read more: Bitcoin price prediction for 2024/2025/2030
McNeil expects the price to rise gradually due to supply constraints in BTC. Even if most investors do not use Bitcoin as a currency, he believes Bitcoin is still considered a store of value and has the right technical characteristics to function as a currency.
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