‘People are chucking stuff like gold and Bitcoin’ as rising inflation leads investors to seek yield - Fortune
Bitcoin dropped more than 4% on Friday to $68,500, erasing three months of gains, as rising inflation prompts investors to seek yield in government bonds.
The cryptocurrency's downturn extends beyond Bitcoin, with Tether's USDT losing $7.7 billion in market value over two months, indicating reduced liquidity in crypto markets. CryptoQuant's demand indicator shows the weakest investor appetite since December 2023, while Bitcoin ETFs have become net sellers again.
Inflation drives shift
Tuesday's Consumer Price Index revealed October prices rose 0.4%, exceeding economists' forecasts. Even core inflation, excluding food and energy, ran hotter than expected.
Because these are non-yielding assets, and we expect inflation to rise… people are chucking stuff like gold and Bitcoin to find… government bonds that are going up, providing you [with] income.
Gold also struggling
Gold traded near $3,900 an ounce on Friday, significantly below its January peak of approximately $5,600. The precious metal has declined about 5% over the past month and nearly 5% from a year ago, reflecting similar pressures affecting Bitcoin.
Political and AI factors
Bitcoin's recovery has faced political headwinds after midterm elections gave Democrats control of Congress, which the crypto industry views as less favorable. However, Stephen Coltman noted the results weren't surprising and provide regulatory stability for two years.
The AI boom further complicates Bitcoin's outlook, drawing investment away from digital assets while potentially supporting the economy enough for interest rates to remain high. This 'AI black hole' competes for investor dollars, though Bitcoin remains closely tied to tech stocks.
Coltman suggests that if AI spending leads to economic weakness, the Fed might change course on interest rates, potentially creating opportunities for Bitcoin. For now, the cryptocurrency remains in a challenging position between competing market forces.
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