[Bitcoin Now] It Has Risen for Now... But the Possibility of a Decline Is High

US June CPI Rises 9.1% Despite Upward Trend

[Image source=Yonhap News]

[Asia Economy Reporter Lee Jung-yoon] Although the U.S. Consumer Price Index (CPI) for June recorded an increase of over 9%, the price of the leading cryptocurrency Bitcoin showed an upward trend. This phenomenon is interpreted as being due to expectations of an inflation peak-out and the resolution of uncertainties. However, some speculate that the possibility of a 'jumbo step'?raising the benchmark interest rate by 1.0 percentage point at once?may prevent the upward trend from lasting long.

According to the global cryptocurrency market tracking site CoinMarketCap, as of 9 a.m. on the 14th, the price of Bitcoin was recorded at $20,211 (approximately 26.42 million KRW), up 3.91% from the previous day.

Bitcoin prices showed an upward trend despite the U.S. June CPI, announced on the 13th (local time), soaring 9.1% compared to the same month last year. After the June CPI announcement, the $19,000 level was breached, and within about an hour, the price plunged nearly $900 from $19,898 to $18,999. However, due to expectations of a peak-out, the synchronized rebound in the U.S. stock market and the resolution of uncertainties appear to have led to the price increase. Around 8:20 a.m. that day, Bitcoin recovered the psychological support level of $20,000.

Although a recovery trend appeared after the June CPI announcement, it is uncertain whether this trend will continue. The emergence of high inflation has increased pressure for a high-intensity tightening policy. Previously, when the U.S. May CPI announced on the 10th of last month rose 8.6% compared to the same period last year, Bitcoin prices showed a downward trend and subsequently deepened the decline. Until the Federal Reserve (Fed) implemented a 'giant step' by raising the benchmark interest rate by 0.75 percentage points at once on the 15th of last month, tightening fears dominated the market, causing Bitcoin prices to weaken.

Additionally, a series of collapses among crypto-related institutions caused further price declines. Cryptocurrency investment hedge fund Three Arrows Capital (3AC) went bankrupt, and Voyager Digital, a digital asset brokerage that funded 3AC, filed for bankruptcy protection. Furthermore, Celsius, a cryptocurrency-backed lending company, temporarily suspended customer asset withdrawals due to a bank run and is reportedly undergoing bankruptcy-related procedures. After the May CPI announcement on the 10th of last month, Bitcoin prices maintained the $29,000 range but plunged to the $17,000 range on the 19th amid concerns of stagnation and the collapse of crypto-related institutions.

Experts explain that, in the long term, the probability of Bitcoin prices falling is higher. The market has already accepted as a given the possibility of a 'giant step' raising interest rates by 0.75 percentage points at the July Federal Open Market Committee (FOMC) regular meeting. With the June CPI index recording the largest increase since 1981 and exceeding the expert forecast of 8.8%, there is also a possibility of raising the benchmark interest rate by 1.0 percentage point at once. Professor Hong Ki-hoon of Hongik University's Department of Business Administration said, "If the benchmark interest rate is raised, as in past cases, crypto-related institutions are likely to be hit hard," adding, "That could lead to additional declines in Bitcoin prices."

CoreDAX Research Center, a domestic cryptocurrency exchange, also suggested the possibility of a Bitcoin price decline. The research center analyzed that last month, after the possibility of the Fed's giant step was raised, Bitcoin prices plunged to 22.9 million KRW and then showed a typical correction pattern of repeated rises and falls. It further forecasted additional declines, stating that the temporary rise earlier this month was due to excessive price drops.