The last time prices moved this fast, Ronald Reagan was president, gasoline cost about $1.353 a gallon and there was no such thing as bitcoin.
But tempus fugit and, as cryptocurrencies becomes a factor in many people's finances, the sector has had to contend with inflation, which surged to a fresh 40-year high last month, according to data from the Bureau of Labor Statistics.
'Bitcoin Needs Risk Appetite'
The headline consumer price index for the month of June was estimated to have risen 9.1% from last year, up from the 8.6% pace recorded in May and firmly ahead of the Wall Street consensus forecast of 8.8%.
The June reading was the fastest since December 1981.
Analysts appear to be divided as to what this all means for cryptocurrencies.
"A very hot inflation report could spell some trouble for cryptos as the debate for even more aggressive Fed tightening will begin," said Edward Moya, senior market analyst for the Americas with Oanda. "Wall Street thought that a 75 basis point increase would be the worst case scenario for the July policy meeting, but now the argument could be made for a full point increase."
Moya said that the risks of the Fed sending the economy into a recession are growing and that is bad news for risky assets, especially bitcoin.
"Bitcoin needs risk appetite to stabilize and that won't happen if financial markets continue to price in more tightening by the Fed," he said.
Bitcoin was up slightly to $19,839.10 at last check on July 13, according to CoinGecko, while ether essentially flat to $1,090.21 as was dogecoin at $0.060478.
'Sponges for Excess Liquidity'
Cryptocurrencies have been pummeled by a series of unfortunate events in recent months, with bitcoin down 71% from its Nov. 10 all-time high of $69,044.77.
Frank Corva, senior analyst for digital assets at Finder, said the CPI numbers have an effect on people’s ability and desire to invest in crypto.
"The more expensive consumer goods become, the less disposable income people have to invest in risk-on assets like crypto," he said. "Digital assets are sponges for excess liquidity, and the Fed is currently engaging in quantitative tightening in efforts to extract liquidity from the system. And even as the Fed is doing this, CPI prints continue to rise."
This means that the Fed is withdrawing money from financial markets, and consumer goods are becoming more expensive simultaneously, Corva said, noting that "this isn’t good for crypto."
"So long as people are struggling to make ends meet," he said, "they won’t be thinking about adding more risk and uncertainty into their lives by investing in an asset class like crypto, which is notoriously volatile."
Corva said the narrative that bitcoin is an inflation hedge is not often presented with the proper nuance.
"Bitcoin is an inflation hedge when the M2 money supply – or currency held by the non-bank public – inflates, as it did in 2020 and 2021," Corva said. "It’s not an inflation hedge when the prices of consumer goods inflate."
'No Dump in Bitcoin'
If CPI prints continue to come in high, he said, "you’ll likely continue to see relative stagnation in crypto markets."
Martin Hiesboeck, head of blockchain and crypto research at Uphold, said the inflation numbers -- which are also high in the U.K. and Europe -- "does not come as a surprise."
"The real question is not whether those backwards looking CPI numbers put the forward-looking uncertainty in the macroeconomics environment," he said. "However, in particular the price of bitcoin has shown signs of becoming somewhat inflation-fund resistant over the last weeks, as it should be."
An hour after the release of the CPI, Hiesboeck said, "we have seen no massive bleeding in the market and no dump in bitcoin, which leads us to believe that we may have reached a sustainable level from which bitcoin can bounce back significantly."
"The times of greatest fear are often the best time to make courageous bets," he said.
Hong Fang, CEO of the crypto exchange Okcoin, was also optimistic about bitcoin.
'The Silver Lining'
"Despite bitcoin's price, the number of active bitcoin wallets holding 0.01 BTC or less is at an all-time high," she said. "This doesn’t just indicate that interest from retail investors is at an all-time high, it also shows a degree of price agnosticism given the market’s downturn."
"It’s likely that inflation is a major, if not the biggest, factor that’s motivating more people to buy bitcoin," she added.
Rapidly rising inflation can be economically devastating for consumers, Fang said, "and it makes the concept of bitcoin — a currency that no centralized authority can print more of — more appealing than ever for the average person.”
"This is the first time in history that investors have an alternative to fiat," Fang said. "While the Fed has been flexing its money printing power, both retail and institutional investors have been turning to crypto — specifically stablecoins and bitcoin — as an antidote."
With no end to the rapid growth of inflation in sight, she said, "the silver lining is that the people are slowly reclaiming financial autonomy and stability through crypto.”
