UK, Canada, and the US face 40-year high inflation as Bitcoin finds a new support level.
Three major Western countries are now closing in on double-digit inflation. The UK is leading the pack with a 9.1% inflation rate, just behind the US at 8.6% and Canada at 7.7%.
Interestingly, these are all 40-year high records for each country, give or take a few years. This suggests that the world is entering a new economic cycle. Meanwhile, Bitcoin has started stabilizing at around $20,000 as major players like Micheal Saylor double down.
Inflation Skyrockets Across Major Countries
Given the legacy of the Bretton Woods agreement, it is not surprising that the world’s most powerful central bank, the Federal Reserve, and its actions likely triggered the global inflation spiral.
While each country had its own enormous lockdown-induced expenditures, nothing compares to the $5 trillion the Fed pumped into the economy.
In the aftermath, both the UK’s Bank of England and the Bank of Canada are following the Fed in raising interest rates.
- The Federal Reserve is likely to boost interest rates by another 0.75% in July, followed by a 0.5% increase in September, according to economists polled by Reuters. The current Fed funds rate sits at 1.58%.
- The Bank of England raised its interest rate to a 13-year high at 1.25%. However, given that the UK is almost at a double-digit threshold, BoE’s chief economist Huw Pill recently noted that the bank should be ready for more aggressive hikes.
- The Bank of Canada is almost certain to raise its interest rate by 0.75% on July 13, from the current 1.5%, which was raised by 0.5% at the beginning of June.
Of course, inflation is a double-edged sword. While on one side it raises the cost of living, combating inflation raises the cost of capital. In turn, this triggers an economic cooldown that may end up in a recession, as demonstrated by market sell-offs. BoE’s chief economist Huw Pill already noted as much.
“We see ourselves as steering a narrow path between persistent inflation pressure and recession,”
Bitcoin Finds Support Over $20,000
Having been launched after the financial crisis of 2008, Bitcoin is heading into uncharted waters. For the first time in history, Bitcoin represents an alternative P2E payment network outside of the central banking system. One that doesn’t have any boardrooms, directors, or banks.
Instead, Bitcoin “just” has cryptographic math accounting for 21 million forever-limited coins on decentralized miners. However, Bitcoin also represents a speculative funneling vehicle for the Fed’s money supply.
At the height of the Fed-induced market bubble in November 2021, Bitcoin got to its peak of $69k. After market sell-offs, BTC deflated by -70% since. As we cross into a new economic cycle, Bitcoin is experiencing its first major upheaval.
Image credit: Trading View
Although Bitcoin dipped into the $18k range on Saturday, it swiftly recovered. As forecasted by the Relative Strength Index (RSI) last week, it appears that Bitcoin has reached its bottom at $20k. Under 30, RSI shows that it is still oversold.
Those who hold over one BTC are also ramping up their Bitcoin acquisition, a trend that is inversely proportional to its price drop. So far, over 13,000 new addresses holding over 1 BTC have taken advantage of the crash.
Image credit: glassnode
Overall, this marks another exchange from weak hands (short-term holders) to strong hands (long-term holders), a process we have seen many times before. Theoretically, it should make Bitcoin more resilient to future market surprises.
Yet, no one can say for sure where the economy is heading in its most extreme scenario. Nonetheless, for people under 40 years old who are facing an economic crisis for the first time, they have something that hadn’t existed before.
Bitcoin is a borderless and masterless asset. It is subject to market forces, shorting, and whale fakeouts, but so is any other asset as well. In the long run, however, it appears that whales are always on the side of accumulation.