Bitcoin Dives as Inflation Jumps to a Four Decade High

The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.8 percent in November on seasonally adjusted basis after rising 0.9 percent in October, the U.S. Bureau of Labor Statistics reported today.

The all items index rose 6.8 percent for the 12 months ending October, the largest 12-month increase since the period ending June 1982, the Bureau said.

An increase in inflation generally suggest there’s a significant increase in new monetary supply, therefore hard assets like bitcoin should rally.

Stocks did somewhat, with Dow Jones up 0.10%, but bitcoin and other cryptos have fallen instead, with ethereum down about 5%.

The reason is perhaps because the market is trying to price in a quicker reduction in monetary printing, starting with a lowering of asset backed purchases of both government bonds and mortgage backed securities.

But with new restrictions in Europe underway, any such move would have to go slowly especially as it remains unclear whether this inflation is a one off due to the uncharacteristic huge economic growth seen this year following the re-opening.

That growth will return to more ordinary levels, at which point inflation readings would be better indicators as currently they’re all over the place due to the extreme economic measures taken during the past two years.

We may therefore be seeing an overreaction in cryptos as there probably won’t be any real monetary move in US until we get the data next year.