Can rising inflation catalyse Bitcoin’s rebound?

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Can rising inflation catalyse Bitcoin’s rebound?

Bitcoin, Bitcoin price, Bitcoin price prediction
Image source: © B65381 | Megapixl.com

Highlight:

  • Bitcoin is still down 43% from its all-time high hit in November 2021.
  • Recently institutional in Bitcoin seems to have increased.
  • This could be because of rising inflation in the US.

Bitcoin (BTC-USD) has been consolidating around the US$40K mark over the last couple of weeks after showing some rebound in the first two weeks of February 2022. The world’s largest crypto rebounded from US$36.5K on 2 February to over US$44k on 10 Feb.

The ongoing Russia-Ukraine war has only amplified the volatility of the bellwether crypto. At the time of drafting this article, BTC was hovering above US$39K mark, which is still 43% lower than its all-time high (ATH) of US$68,789.63 hit on 10 November 2021.

In such a scenario, it is natural to wonder if BTC can manage to bounce back to its all-time high levels anytime soon? As experts say, it is quite possible given the current inflation scenario. If the Russia-Ukraine war continues for long, then Bitcoin price may rebound as investors will look for uncorrelated asset classes such as cryptocurrencies to protect the value of their investment. And Bitcoin being the leader in the crypto space with a market capitalisation of US$743 billion as on date, is likely to rebound.

Also Read: Down 70% in 90 days: Is Loopering (LRC) crypto’s fall because of overvaluation?

Given the fact that Bitcoin has corrected over 43% from its all-time high, some investors now believe BTC could be at a bargain level.

Institutional interest in Bitcoin on the rise

Cryptoslate.com on 11 March reported that an institution might have invested US$1.17 billion in Bitcoin, looking at three crypto transactions in which massive amount of BTC was moved from a Coinbase Pro wallet to an anonymous wallet.

Whale Alert, a popular crypto transaction tracker, in a series of tweets announced that substantial chunks of Bitcoin have been withdrawn from Coinbase Pro.  The total amount of BTC transferred to the anonymous wallet was over US$1.17 billion.

Image Source: [email protected]_alert

This made Cryptoslate believe this could be the work of an institutional investor. Whale Alert put out three tweets informing that those three transactions worth over US$300 million each occurred on March 11.

In a recent tweet dated 15 March, Whale Alert informed that 1,280 BTC (worth US$49.5 million) was transferred from Coinbase to an unknown wallet.

So, the recent surge in institutional investors' interest in BTC could be because of surging inflation, which some believe, could go out of control, given the sanctions imposed on Russia.

According to data released by the Bureau of Labor Statistics in the US on 10 March, inflation soared by 7.9% over the last 12 months, hitting a 40-year high. This is up from 7.5% reported in February and 7% in January. Worth mentioning here is that trailing annual inflation has now risen for six months in a row over the prior months. In August 2021, inflation was 5.3%.

It may not be wrong if we correlate that the Bitcoin transaction reported on March 11 occurred just after the massive spike in inflation was reported. Institutional players are probably looking for ways to hedge their investment from market-moving events.

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If inflation continues to rise in this manner, then the US Federal Reserve will be forced to hike interest rates and tighten money supply as per the current market expectations. If this happens, then equities and the debt market across the globe will correct and people will look for safe havens to park their money.

So, if we were to go by the recent spike in institutional activity in Bitcoin, then the bellwether digital token might be poised for a rebound. It is right that Bitcoin's current utility value is not much, and it is mostly driven by speculation. But the current speculative value is probably because of Bitcoin's potential ability to act as a safe haven. But given the volatility the crypto space has shown in the past, potential investors must assume that the term "safe haven" relates to long-term.

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