According to Grayscale, recent inflation figures may have a short-term negative impact on crypto, but continuous inflation will ultimately increase sentiment towards cryptocurrency.
Inflation refers to the prolonged increase in the general price level of goods and services in an economy over time, usually resulting in a decline in the purchasing power of fiat currency.
In March, the Consumer Price Index (CPI) statistics exceeded expectations. Inflation grew by 0.4% month-on-month and 3.5% year-on-year.
This was in contrast to the Dow Jones economists’ survey estimates, which predicted a 0.3% month-on-month and 3.4% year-on-year growth.
This difference was mainly influenced by increases in the cost of shelter and fuel, as shown in a report released by the US Bureau of Labour Statistics.
Interest rate increases are used as a tool to reduce inflation by slowing economic activity, lowering consumer spending and business investment, strengthening the currency, and altering expectations about future inflation. These impacts combine to reduce inflationary pressures in the economy.
Therefore, this unexpected increase in inflation has lowered the confidence in the possibility of the Federal Reserve lowering interest rates in the coming months.
According to CME’s FedWatch tool , at the time of writing traders estimate the probability of a June rate decrease at only 20.6%, compared to 45.9% for September.
This indicates that market analysts expect the US Federal Reserve to hold interest rates constant in May and June, with the first likely rate cut coming in September.
This prolongs the economy’s slowed state, resulting in less volume flowing into assets like Bitcoin and investors decreasing their position. As evidenced
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