The growing adoption of Bitcoin and the Fed’s hawkish stance on inflation have driven the price of the asset higher.
- Federal Reserve policymakers are taking an aggressive stance against inflation, which is improving investor sentiment.
- Bitcoin adoption continues to grow despite recent price weakness.
Bitcoin hasn’t had the best start this year. Since January 1, the cryptocurrency has seen its price drop by 9% due to high inflation and a nervous market created by the war in Ukraine. However, Bitcoin has seen its price jump over 10% over the past week to nearly $43,000 per unit. Here are some reasons.
Investors switch from short to long positions
One of the main drivers behind Bitcoin’s recent price decline is that inflation continues to rise. While the asset was once thought to be the perfect inflation hedge, Bitcoin’s recent price movements show that may not be the case.
After the Bureau of Labor Statistics released its February inflation figures, which were nearly 8%, the price of Bitcoin fell over $3,000 per unit to $39,000. The price has since rallied, but the move shows that Bitcoin is losing its luster as an inflation hedge.
However, investors have found reason to believe Bitcoin will rebound. The recent market downturn caused more than $168 million in short positions for Bitcoin to be lost, according to Coinglass. This coincided with a noticeable shift among investors from short to long positions.
Fed takes hawkish stance against inflation
Bitcoin’s recent gains were also boosted by remarks by Federal Reserve Chairman Jerome Powell on March 21 that the central bank may step up its efforts to curb inflation.
“We will take the necessary steps to ensure a return to price stability,” Powell said in a speech to the National Association of Business Economics. “In particular, if we conclude that it is appropriate to act more aggressively by raising the federal funds rate by more than a quarter point at a meeting or meetings, we will do so.”
For many investors, Powell’s remarks were hardly surprising. They merely served to confirm what many were already thinking and appear to have tamed a significant amount of uncertainty that has been swirling around the market.
Bitcoin Adoption Continues to Rise
As monetary policy makers continue to battle inflation, Bitcoin adoption continues to grow.
Earlier in March, famed investor Ray Dalio said his company, Bridgewater, would be opening a cryptocurrency fund in the near future. This would make Bridgewater one of the biggest investment firms to enter the cryptocurrency space. Other firms already offering crypto investment products include London-based Brevan Howard and a subsidiary of Steve Cohen’s Point72 Asset Management called Messari.
The asset has also found its way into new continents like Africa. And a recent report from KuCoin shows that Bitcoin has become immensely popular there, with a user increase of over 2,500% in 2021.
As with any investment, cryptocurrencies come with many risks that investors should be aware of before spending their first dollar.
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