Now that Bitcoin has once more retraced below $20k, investors are seeking some rays of optimism from news and announcements, and there may be some hope in data that is being released over the coming days. Notably, the producer price index statistics were released today, and haven’t imbued the markets with confidence.
Producer Price Inflation (PPI) data coming out today – a 0.4% rise
The Producer Price Index (PPI) measures the inflation that companies experience in terms of acquiring raw materials, and the input costs that go into delivering the final product to consumers.
Given that companies are often earlier in the supply chain than consumers, they are the ones who feel the effects of inflation first, and inflation is only passed on to the consumers in the form of CPI further down the line.
Over the past few years, profligate government spending has meant that the costs of raw materials has skyrocketed, with the costs of lumber and other raw materials having doubled.
The rise of 0.4% in the PPI shows that inflation is still rising, which ought to be a huge concern for companies around the world, who will inevitably have to continue to pass on higher prices to their consumers.
Consumer Price Inflation (CPI) data coming out tomorrow
The most common metric for measuring inflation is the Consumer Price Index, which measures the change in price of a basket of goods and services that individuals may spend on.
This is an important metric because it shows how an average citizen may be affected by changing prices on a daily basis.
If the CPI inflation rate comes in less than 8.3%, this is generally thought to be a bullish thing for “risk on” assets such as Big Tech stocks and Bitcoin.
Google signs a partnership with Coinbase
The macroeconomics are extremely important for the Bitcoin price, given that Bitcoin’s high market cap has given it a high degree of correlation with other asset classes. Often, Bitcoin now trades as a Big Tech stock with an extremely high degree of correlation with the Nasdaq over the short term.
However, as a nascent asset class, it is also fair to say that Bitcoin has not yet reached market saturation, and there are many things that large companies could do that would help dramatically increase adoption and exposure to the asset.
Yesterday, Google announced that they were partnering with Coinbase to accept payment in BTC and ETH for some of their cloud-based services. Considering that Google is one of the largest companies in the world, with an outreach larger than that of any other company by far (billions of people worldwide have access to Google).
Bitcoin can very easily decouple from the stock market
Some of the main proponents of Bitcoin, including the notorious evangelist Max Keiser, have argued that over the long term Bitcoin will demonetise every other asset class – removing the monetary premium that it stored in gold, bonds, stocks, and real estate.
Over the short term, traders are often interested in the fact that Bitcoin trades with a high degree of correlation to the stock market, and those people may be interested in trying to trade or speculate over Bitcoin’s volatility.
However, over the long term traders are missing the wood for the trees: unlike stocks and shares, Bitcoin is one of the purest examples of an asset that grows with Metcalfe’s Law, since much of the value is derived from Bitcoin’s network effects itself.
The rise in the producer price index, although only marginal, will be concerning for companies and politicians, and likely demonstrates that the worst of the recession is still not over.
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