Bitcoin is up 10% over the last week. Why? – The Motley Fool

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by Robert Davis | Published on March 22, 2022
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Bitcoin’s increasing adoption and the Fed’s hawkish stance toward inflation has sent the asset’s price soaring.
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Bitcoin hasn’t gotten off to the best start this year. Since Jan. 1, the cryptocurrency has seen its price fall by 9% because of high inflation and a jittery market created by the war in Ukraine. However, Bitcoin has seen its price jump by more than 10% over the last week up to nearly $43,000 per unit. Here are a few reasons why.
One of the key drivers of Bitcoin’s recent price drop is that inflation continues to grow. While the asset was once thought to be the perfect hedge against inflation, Bitcoin’s recent price movements show that may not be the case.
After the Bureau of Labor Statistics released its February inflation numbers, which was nearly 8%, Bitcoin’s price dropped by more than $3,000 per unit to $39,000. The price has since recovered, but the movement shows Bitcoin is losing its shine as a hedge against inflation.
However, investors have found reason to believe Bitcoin will rebound. The recent market downturn squeezed out more than $168 million in short positions for Bitcoin, according to Coinglass. This has coincided with a notable shift among investors from short positions to long positions.
Bitcoin’s recent gains were also spurred by Federal Reserve Chairman Jerome Powell’s remarks on March 21 that the central bank may increase its efforts to tamp down inflation.
"We will take the necessary steps to ensure a return to price stability," Powell said in a speech to the National Association of Business Economics. "In particular, if we conclude that it is appropriate to move more aggressively by raising the federal funds rate by more than a quarter-point at a meeting, or meetings, we will do so."
For many investors, Powell’s remarks were hardly surprising. They simply served to confirm what many were already thinking, and seem to have tamed a significant amount of uncertainty that was roiling the market.
While monetary policymakers continue to fight inflation, the adoption of Bitcoin continues to grow.
Earlier in March, famous investor Ray Dalio said his firm, Bridgewater, will open a cryptocurrency fund in the near future. This would make Bridgewater one of the largest investment firms to enter the cryptocurrency space. Other firms that already have crypto investment products include London-based Brevan Howard and a subsidiary of Steve Cohen’s Point72 Asset Management called Messari.
The asset has also found its way onto new continents like Africa. And a recent report by KuCoin shows that Bitcoin has become immensely popular there, with users increasing by more than 2,500% in 2021.
As with any investment, cryptocurrencies carry a lot of risk that investors need to be aware of before spending their first dollar.
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Robert writes about cryptocurrencies and nonfungible tokens for The Ascent. Before that, he spent more than seven years writing about everything from social policy to business and politics, and everything in between.
We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.
Robert Davis has no position in any of the cryptocurrencies mentioned.
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