Bitcoin continued to rally on Wednesday despite a tepid inflation report that would have bolstered its reputation as a hedge against the dollar’s depreciation.
On Wednesday lunchtime, Bitcoin changed hands at $ 56,864.92, up 5.36% over the past 24 hours, CoinDesk reported. In the past five days, Bitcoin, the leading cryptocurrency, has rebounded from around $ 47,000 based on its market cap of $ 1 trillion. In February, it hit its all-time high of $ 58,332.36.
“The narrative that Bitcoin is a good hedge against inflation is, in our view, a robust one that currently appears to be firmly embraced by major market players,” Jason Deane, Bitcoin analyst at Quantum Economics, told London Newsweek. “A single report is unlikely to change that, especially given the long, or even very long, time horizon in which the effects of the devaluation are certain to be felt by many investors.”
Treasury Secretary Janet Yellen reiterated her belief that Monday’s inflation concerns are likely to be unfounded. In the photo above, Yellen is listening during a meeting with President Joe Biden in the Roosevelt Room of the White House on March 5, 2021 in Washington, DC
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Deane said the long-term outlook for Bitcoin remains strong.
“There is tremendous activity in the Bitcoin markets right now,” he said.
“It is clear that institutional purchases will continue and the large Bitcoin purchases recently reported by Coinbase could be evidence of that,” Deane said. “Business education seems to be accelerating, and Glassnote’s on-chain data seems to suggest that retail adoption is also growing significantly. This, coupled with the continuing decline in liquidity on the stock exchanges, has resulted in a classic supply imbalance and demand that allows Bitcoin to revert to previous highs and possible new price discovery. “
The consumer price index, a measure of the prices consumers pay for routine items, including groceries and clothing, rose 0.4% seasonally adjusted in February versus January, the US Bureau of Labor Statistics reported Wednesday.
Gasoline prices rose 6.4% from January, accounting for more than half of the increase. The cost of electricity and natural gas rose by 3.9%. New car prices remained unchanged.
The core price index, which often excludes volatile food and energy, rose 0.1% in February versus January and was 1.3% above the same period last year. Core prices hadn’t changed in the past three months.
In this photo illustration, a visual representation of the digital cryptocurrency Bitcoin, Bitcoin is displayed in front of the Bitcoin exchange rate chart on June 25, 2019 in Paris, France.
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Overall, consumer prices rose slightly. Analysts said the increase was due to increased demand for goods and services as the economy recovered from the COVID-19 shutdown, as well as severe winter weather, which increased demand for heating.
Even so, the modest spike in inflation is bad news for small savers, who typically earn less than 0.50% on money market accounts, making Bitcoin attractive to those who can tolerate the risk and manic price fluctuations.
“Ordinarily, you would use interest-bearing instruments to offset some, if not all, of the currency devaluation effect,” said Deane, “but that is simply not possible in the current environment, and probably not for some time.”
He said the ease of acquiring Bitcoin gives the currency an edge.
“Since Bitcoin is easy to buy and hold, and because many argue that it already has a proven track record, it is a logical purchase decision,” said Deane.
Jason Deane, Bitcoin Analyst, Quantum Economics, London (photo provided)
Analysts expect prices to rise 2.2% overall this year as the pandemic subsides and the economy picks up again. In 2020 the inflation rate was 1.4% and was thus below 2.3% in 2019. Core inflation is expected to be around 2.2% in 2021. At the end of last year it was 1.6%.
Bond investors had bet that the economic recovery and increased government spending would lead to higher inflation. However, the dollar strengthened and the 10-year US Treasury bond yield stabilized.
A $ 1.9 trillion coronavirus aid package is expected to reach President Joe Biden this week. Bitcoin believers believe the move will boost inflation and further undermine the dollar’s reputation as the world’s reserve currency.
The rocket-like rally and subsequent crash in shares of video game retailer GameStop in January rekindled discussions over a financial transaction tax. By early Wednesday noon, GameStop fell 12.52% to $ 216 per share after generating profits for five consecutive days.
“One way to ensure that this tremendous wealth on Wall Street actually reaches the real economy is to enact and review proposals like a financial transaction tax,” said Rep. Rashida Tlaib of Michigan last month at a hearing from House Financial Services Committee.
Democratic Representatives Rashida Tlaib (left) and Pramila Jayapal (right) both supported the $ 1.9 trillion COVID relief plan.
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Rep. Peter DeFazio (D-Oregon), chairman of the House Committee on Transportation and Infrastructure, has sponsored a draft infrastructure, the Moving Forward Act, in which 27 co-sponsors participated, including James Clyburn (D-South Carolina).
Senator Bernie Sanders, an independent Vermonter negotiating with the Democrats, has often advocated a transaction tax, but his proposal has gone nowhere.
The Senate is now 50% split between Democrats and Republicans, but the measure could be passed through a budget vote, a process that allows the Senate to pass tax and spending laws by simple majority. If the Senate is deadlocked, Vice President Kamala Harris will have the casting vote.
In this March 9, 2020 photo, stockbroker Peter Tuchman works on the floor of the New York Stock Exchange (NYSE) in New York City.
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Critics argue that a tax on stock deals would hurt investors by increasing costs and reducing returns. In New York, some lawmakers are trying to revive a state tax on stock deals that has not been levied since 1981.
The New York Stock Exchange and corporate groups argue that such a tax would drive financial firms out of Manhattan, undercut the economy, and reduce the city and state’s income tax revenues.
With current computer technology, major stock exchanges could move to a low-tax state like Florida, Texas, or North Carolina to avoid New York state taxes, critics note.