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Bitcoin’s price has nearly doubled in the past eight weeks as several major publicly traded companies bought the cryptocurrency to protect themselves from a decline in the value of their cash holdings caused by inflation.
Hedging demand for the cryptocurrency may now be set to rise further, with long-term inflation expectations hitting 19-month highs.
The 10-year break-even inflation rate in the United States, which represents how the market predicts long-term inflation, rose to 1.85% on Wednesday. This is the highest level since May 2019. The metric bottomed at 0.5% in March, according to the St. Louis Federal Reserve Bank.
The Federal Reserve’s increased money supply policies to counter the coronavirus-induced slowdown have done much to fuel rising inflation expectations, as well as the devaluation, or devaluation, of the dollar.
The dollar index, which tracks the value of the greenback against major currencies, is seen close to 91.00 at press time, a level last seen in April 2018, according to TradingView. The dollar peaked near 103.00 in March.
Such factors typically force both institutions and retail investors to buy traditional value-added assets such as gold. This year, institutions have invested more and more money in bitcoin, reinforcing its appeal as a hedge against inflation.
“What we are trying to do is to preserve our treasure. The purchasing power of cash is decreasing rapidly, “Nasdaq-listed MicroStrategy CEO Michael Saylor told CoinDesk last month, explaining the rationale behind the company’s decision to buy bitcoin. According to Saylor, bitcoin is an asset of better value than gold.
Several other companies have turned to bitcoin in recent months. The trend could continue, with Morgan Stanley expecting a further 10% decline in the dollar over the next 12 months.
Bitcoin’s lightning-fast rally from the March low of $ 3,867 to Monday’s record price of $ 19,920 has occurred alongside a steady downward trend in the US dollar (top left).
The cryptocurrency has established a trading range of $ 18,000 to $ 20,000 in the past two days. According to Patrick Heusser, a senior cryptocurrency trader at Crypto Broker AG based in Zurich, large sell orders near $ 20,000 and steadily declining demand have led to price consolidation.
“If either side breaks down, I think we would see fireworks, especially on the upside,” Heusser said. Bitcoin is trading close to $ 19,372 at press time, with a 1.16% gain in 24 hours.
