For much of 2021, the Federal Reserve claimed that inflation was “transitory”, linked to pandemic-related supply chain bottlenecks. But since it finally admitted that inflation is here to stay, things have gone from bad to worse, as the latest consumer price index (CPI) shows inflation running red hot, its highest level in 39 years. Bitcoin shot up on the news.
Energy Costs Soar
On Friday, December 10, the US Bureau of Labor Statistics published CPI data for the 12 months ending November, measuring 6.8 percent, the largest 12-month increase since the period ending June 1982.
Energy proved to be one of the main contributors to the dramatic increase with costs rising by close to 60 percent. That, coupled with soaring house prices and increased food costs (6.1 percent), has left many US consumers under increased financial pressure, a phenomenon unlikely to change in the near-term. Given that the recent increase is 0.6 percent higher than October’s CPI numbers, some commentators have warned that December is likely to be even worse.
Bitcoin, the Inflation Hedge
Despite rising above US$50,000 upon news of the latest CPI data, Bitcoin has since pulled back, and at the time of publication is trading at US$46,997.
As Michael Saylor continues his mission to “orange pill” the corporate establishment, one of his most recent successes appears to be Tucker Carlson of Fox News. Reacting to the latest inflation news, Saylor posted a clip of Carlson which encapsulates Bitcoin’s “why”.
When people say that Bitcoin is an inflation hedge, critics are often quick to point to short-term volatility as evidence to the contrary. The reality is that in the short term, Bitcoin often acts as a “risk-on” asset, like equities. However, over the long run, it is “risk-off” (like gold) and best considered as default insurance on a basket of fiat currencies. Argentinians certainly hold this view, given that recent inflation has exceeded 50 percent.
As President Joe Biden raised the US’s debt ceiling once again on December 11, the sentiment among many Bitcoiners was inevitable, summed up in Kenny Florian’s take:
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