Digital token shows that it is not immune to market movements
Although its proponents claim to the contrary, Bitcoin is not immune to doubt about the Federal Reserve’s ability to bring down the worst inflation in nearly 40 years.
The cryptocurrency’s recent plunge has demonstrated that it is susceptible to larger market sentiment, undermining claims that it can mitigate the terrible effects of inflation.
Cryptocurrency not holding up as well as expected amid inflation
If bitcoin is used as a hedging tool, Lindsey Bell, chief market strategist at Ally Financial Inc., believes it should behave similarly to gold, which gives the exact steady trend in a competitive industry.
“Now that inflation is on the rise – and rapidly – cryptocurrencies aren’t holding up as well as they once did. “The volatile character of cryptocurrency is one of the key reasons why it isn’t always the best inflation hedge,” Bell added.
The Federal Reserve indicated on Wednesday that it will begin raising interest rates shortly and will reduce its bond holdings once the rate hikes begin. Bitcoin rose 6.4 percent in response to a spike in stocks, which might be a concern for those who support cryptocurrency hedging.
Investors were buying bitcoin and other commodities in expectation of inflation, according to Eric Ervin, CEO of Blockforce Capital, which led to an all-time high for bitcoin in November, and further adjustment should be expected as politicians quit providing support to the economy.
“The market is beginning to foresee a cooling of these inflationary expectations, and bitcoin is selling off in response.” “I think we’re in for a lot of heartaches if this inflation continues and the Fed has no control over it,” Erwin added.