Inflation is accelerating, the price of Bitcoin will fall

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Today we saw further acceleration in the US consumer price index for February, with data in line with consensus expectations at 7.91%. Previously, we expected inflation to potentially peak in the first quarter while remaining high for the rest of the year, but this scenario looks increasingly unlikely as soaring commodity and energy prices now takes over.

Even if this has little material impact on lower prices, the Federal Reserve and other central banks are now in a position where they are now forced to try to aggressively tighten monetary policy to maintain integrity or illusion of their price stability objectives.

Since December, a rise in 10-year yields with increasingly expensive credit has coincided with a drop in the price of bitcoin.

A rise in 10-year yields with increasingly expensive credit coincides with a decline in the price of bitcoin.

So what does all of this mean for the big picture?

Credit markets are beginning to realize that inflation is here to stay, in a fat So, much like the upward trend in yields since the fourth quarter of 2021. As credit instruments sell off, interest rates in a historically overleveraged economic system rise, leading to lower net present value financial assets and an increase in interest charges on consumers, businesses. and sovereign balance sheets.

Our base-case scenario for the short/medium term is increasingly tighter financial conditions and loosening of leverage (in traditional markets, as bitcoin derivatives have already significantly reduced risk).

In our view, this regime ends with a liquidity crunch in traditional markets, which likely has a net negative impact on bitcoin’s price, followed by a central bank policy pivot to quantitative easing, and ultimately , a yield curve control.

Short/medium term liquidity risks aside, the endgame is unchanged. The case for an absolutely rare non-sovereign digital currency asset has never been stronger.

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