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Bitcoin (BTC USD) continues to push higher as the market embraces recovery. While this outcome is raising hopes of more upside, inflation data suggests that the cryptocurrency might have a challenging time on its quest for recovery.
Bitcoin and altcoins are pivoting from the overall bearish trend that has prevailed in Q1 so far.
However, investors are curious as to whether this recovery could yield more upside or whether it is a temporary ceasefire from the bears.
If recent economic data is anything to go by, then Bitcoin (BTC USD) might struggle to achieve more recovery in the short to medium term.
This is because the threat of sticky inflation may limit liquidity flows. Recent analysis revealed that long term inflation expectations surged to levels last seen in 1993.
In other words, analysts anticipate higher inflation in the coming months.
How Risk of Higher Inflation Threatens BTC’s bullish potential
Historical performance especially during the previous bull run offered insights into how the market responds to relative to inflation.
High inflation means the FED will likely raise interest rates. This in turn has a negative impact on liquidity flows.
Investor sentiment shifts with a preference for holding cash when inflation is high.
This means the crypto segment could be at risk of liquidity outflows in the coming months.
If the above scenario turns out to be the case, then Bitcoin (BTC USD) will likely drop below $80,000.
As for the bottom range. Meanwhile, rising sentiment around Bitcoin potentially hitting a bottom near the $60,000 was observed recently.
Will Bitcoin (BTC USD)ever work as an anti-inflationary hedge?
Bitcoin has often been described as digital gold and had even been marketed an inflation hedge.
Gold prices have been on the rise recently as the stock market crashed due to recession fears.
Gold’s safe haven status is the main reason for its demand and consequent rally. Meanwhile, the same status does not seem to extend to BTC.
The difference between Bitcoin and gold is that BTC is still categorized as a risk-on asset and trades in tandem with the stock market.
This is evident by its significant correlation with the S&P500. But is there a scenario where Bitcoin will eventually be recognized as a safe haven?
Investment by governments and institutions could perhaps make push BTC closer to being more like gold.
Regulatory clarity and widespread adoption could nudge Bitcoin towards safe haven status in the future.
The reality for now is that inflation and economic pressures are big influences as far as Bitcoin (BTC USD) price is concerned.
It is however worth noting that Bitcoin tends to outperform gold in the long term. This trait is likely to continue hence making BTC more an exciting option for the long haul.
