US inflation dictates the price of Bitcoin (and the direction of the stock markets)

Because Bitcoin’s price is quoted in US dollars, it is mainly the strength of that currency that is currently impeding Bitcoin to climb to a higher level. Even more important is the fact that American inflation appears to be rising again which means an imminent interest rate cut seems further away than ever. Both the stock markets and Bitcoin are once again anxiously awaiting what Federal Reserve Chairman Jay Powell will do and say.

US inflation is heading back up.

Buy #gold and #silver pic.twitter.com/E8RQdM4Hom

— Mr. Uppy (@MisterUppy) April 29, 2024

At the beginning of the year, analysts predicted 6 to 7 interest rate cuts this year. That number has now been reduced to 3 to 4. It is expected that the first interest rate cut by the ECB or the Fed will not come before September. Hence we’ll have to wait at least another five months.

Direction

April is almost over and for both the stock markets and Bitcoin it has been a month without a clear indication of direction. Whereas the first quarter of 2024 was mainly a continuation of the fourth quarter of 2023, April has given way to confusion and nervousness. Geopolitics plays a role in this (Ukraine-Russia and Israel-Hamas in other words) as well as the first quarter results of the ‘magnificent seven’ (Nvidia, Apple, Alphabet, Tesla, Microsoft, Meta and Amazon), which were not very good .

However, the most striking data point was the inflation rate from the United States. US Inflation now stands at 3.5%, while the Federal Reserve has been hopelessly trying to get it to 2% for two years. In order to get to that target, the Fed has implemented a barrage of interest rate increases. Last week it emerged that the average American has lost about 25% of his personal wealth to inflation since the start of the Covid-19 pandemic.

The US dollar lost over 25% of its purchasing power since January, 2020.

Worst part is you’re not even mad about it.

Oh well, see you at 100k Bitcoin 💎✍️ pic.twitter.com/TukRsJOYB0

— Luke Belmar 👽 (@lukebelmar) April 28, 2024

‘Mood’

Furthermore, Bitcoin has become very dependent of the ‘mood’ on Wall Street since January 10, 2024 (on that day the US Securities and Exchange Commission (SEC) approved 13 spot bitcoin ETFs, legitimizing ‘crypto’ as an asset class and allowing institutions to, in a certain way, control the price of Bitcoin). This mood has worsened in recent weeks.

For example, in the first two and a half months of 2024, the S&P 500 saw seventeen trading days where it closed at a new record high. Because of this, Bitcoin and gold also rose to new record prices. A superbly good first quarter. April brought a stop to this positivism because of that damn American inflation rate.

Already we’re wondering what May will bring.