The S&P 500 index is currently trading only 6% below its all-time high, which was reached in December 2021. This would typically be seen as a positive sign for risk-on assets like commodities and cryptocurrencies. However, in this case, investors are using the stock market as a protection against the recent surge in inflation.
Inflation has typically been viewed as a positive factor for Bitcoin and other cryptocurrencies, as evidenced by previous all-time highs reached during periods of monetary expansion and increasing inflation in 2021. However, the current situation is different. Inflation is making a comeback while the U.S. Federal Reserve (Fed) has been reducing liquidity in the system. As a result, the impact of inflation on cryptocurrencies remains uncertain.
Tech stocks have also been experiencing a decline recently. Stocks of tech giants like Fortinet, Block Inc., Paypal, Shopify, and Palo Alto Networks have all seen significant drops. This decline has caught the attention of investors, especially considering the expectation of an additional interest rate hike by the Federal Open Market Committee (FOMC).
Economists predict that the Consumer Price Index (CPI) for July will be around 3.3%, surpassing the previous month’s figure of 3% and exceeding the central bank’s 2% target. With the unemployment rate currently at 3.5%, the tightening of the Fed’s economy becomes more certain.
During uncertain times, gold has traditionally been seen as a safe-haven asset. However, it has struggled to surpass the $2,000 mark on multiple occasions since 2020, indicating a lack of confidence in its ability to hedge against risks.
The real estate market has also been impacted by limited housing supply and rising mortgage rates. Redfin, a real estate company, reported a 21% drop in revenue compared to the previous year, with expectations of a further decline in transaction value for the next quarter.
Even traditionally considered safe assets like bonds are losing appeal due to the ongoing increase in U.S. debt. Investment mogul Bill Ackman reportedly shorted 30-year U.S. Treasury bonds, expressing concerns about long-term inflation. The U.S. Treasury Department’s report revealed a $1 trillion quarterly net borrowing estimate, and an unexpected Fitch Ratings downgrade of U.S. debt further fueled concerns in the financial markets.
As a result, investors are now seeking alternative markets. Bitcoin whales have increased their leverage long positions using derivatives, despite the cryptocurrency’s price remaining around $29,500.
Bitcoin quarterly futures typically trade at a slight premium relative to spot markets. The BTC futures premium on platforms like Deribit and OKX reached 8%, the highest in over three weeks. This higher premium signals that professional traders are willing to pay an additional cost to engage in leverage longs, reflecting a positive sentiment toward Bitcoin.
Traders can also gauge the market’s sentiment by measuring whether more activity is going through call (buy) options or put (sell) options. Currently, the put-to-call ratio indicates a strong demand for call options, suggesting investors’ optimism in the potential price appreciation of Bitcoin.
There is a growing indication that Bitcoin might benefit from the inflation surge. However, if investors start to believe that the Federal Reserve’s idea of a soft landing for the economy is unlikely and that a severe recession is on the horizon, they are likely to favor Treasuries and cash positions initially.
In the short to mid-term, there is not much evidence to suggest that Bitcoin will experience a significant surge if inflation becomes widespread in the U.S. However, there is hope for bullish investors as the cryptocurrency has shown solid support at the $29,000 mark.
Disclaimer: This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.
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