Why Does Bitcoin Turn Bearish as Inflation Spike?

Bitcoin price once again tested the $33,000 level but failed – the biggest cryptocurrency by market cap is now hovering at $32,500 and well below the 55 simple moving average (4-hours). Meanwhile, the stock markets continue to make new highs and the United States economy makes a remarkable recovery, with the latest government data showing the consumer price index (CPI) record the largest gain in 13 years.

Inflation spike raises concerns

The inflation in the United States this time has exceeded expectations. There are three main driving factors for the increase of CPI: oil prices used cars and food. According to data, used cars and trucks contribute to more than one-third of the increase in prices. Although the reasons behind the increase of data are transitory, that does not mean people no longer need to worry about inflation. Even excluding used car prices, CPI’s year-on-year increase is still as high as 3.1%. This shows that the overall price of goods is rising.

For the past few months, the markets are keeping eyes on whether the Fed will hike interest rates. Federal Reserve Bank of St. Louis President James Bullard said on Monday that now “is right to pull back emergency measures.” Some investors worry that a taper tantrum may be coming and undermine economic recovery.

Bitcoin versus the inflation

Bitcoin, the so-called digital gold, is praised by its believers as an ideal hedge against rising prices and inflation, due to its limited supply. From late 2020 through May, Bitcoin benefits greatly from the government’s stimulus package and investors’ fear of inflation. Bitcoin seems to fulfill its hedge-against-inflation narrative until May. Yet on July 13, influenced by many factors, Bitcoin started a fresh decline, dropping by 50% from its all-time high. With inflation accelerating, Bitcoin failed to raise as many people believed it would.

Why is it the case? Are people not flock to Bitcoin as inflation grows? In the long term, inflation will boost Bitcoin’s demand. But in the near term, the Fed putting a break on QE will prompt investors to turn to assets with fewer risks, as the liquidity injected into the market reduces. Therefore, Bitcoin risks further drop with talks of reducing QE coming to the table.

PayPal increases purchase limit of cryptocurrency

A piece of fresh yet good news for Bitcoin is that PayPal is upping the amount of cryptocurrency users can purchase by five times to be $100,000. It means PayPal’s users are allowed to buy $100,000 worth of bitcoin and other digital assets weekly, up from a previous limit of $20,000. Additionally, The payment giant is also scrapping its annual purchase limit of $50,000.

“These changes will enable our customers to have more choice and flexibility in purchasing cryptocurrency on our platform,” Jose Fernandez da Ponte, PayPal’s vice president of digital currencies said on Thursday.

Although it is interpreted as good news by most people, cryptocurrencies have not risen sharply because of this. Therefore, the cryptocurrency may fall again, how can we seize the opportunity?

How to earn profits off the red market?

Futures trading is specially designed for traders to hedge loss and to profit from market volatility rather than be stuck simply stashing their coins. Traders can borrow leverage from exchanges to greatly enhance their buying power. Futures trading with leverage is extremely profitable during market sell-off, where large quantities of bitcoin are dumped into the market.

For instance, if you use 1 BTC and 100x leverage to short bitcoin at $12,000, when bitcoin drops to $11,000, you will earn ($12,000 – $11,000) * 100 BTC/$11,000 = 9.09 BTC.

If you are a novice trader, you could begin by trading with a demo account. A demo account allows you to know how the platform works and practice strategies. You can also learn to use technical indicators with the demo account.

Bexplus is a leading crypto derivatives trading platform offering 100x leverage futures trading on a variety of trading pairs – BTC, ETH, LTC, Dogecoin, XRP, etc. Demo account, 100% bonus and mobile apps are available on Bexplus.

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Image by Joaquin Aranoa from Pixabay