Bitcoin's price soared more than $64500 this week, breaking another record milestone after a month of downward consolidation. Because investors generally believe that the new listing of coinbase, one of the leading cryptocurrency companies, on Wall Street will attract more wealthy investors into this booming industry.

Bitcoin prices hit a new high

But the flagship cryptocurrency has also received bullish signals from elsewhere. On Tuesday, the US Bureau of labor released March consumer price index (CPI) data, which showed that the index was the biggest increase in nearly nine years driven by pent up demand and rising fuel prices.

According to the labor department, inflation in March was 0.6% higher than in February, the fastest growth rate since February and August 2012. According to a Reuters survey, the result was better than the 0.5% analysts expected. At the same time, overall inflation rose by 2.6% instead of the expected 2.5%.

Kathy bostjancic, chief US financial economist at Oxford economics, said inflation could rise to 3.5 per cent this year.

12-month percentage change in U.S. consumer price index source: U.S. Bureau of Labor Statistics

Public concerns about inflation made bitcoin strong. This cryptocurrency rose sharply after its collapse in mid March because the dollar would lose its purchasing power over time. That's because the Federal Reserve decided to cut its benchmark lending rate to near zero and launched an unlimited bond purchase program to cushion the US economy from the recession caused by the pandemic.

Subsequently, the Federal Open Market Committee (FOMC) ruled out the possibility of pushing inflation up to more than 2% in the future. This has further prompted investors to increase their exposure to the bitcoin market as their limited supply is capped at 21 million bitcoins. Now, even companies like Tesla and MicroStrategy are adding billions of dollars worth of bitcoin reserves to their cash based balance sheets.

At the same time, mainstream financial services saw the potential demand of institutional investors for bitcoin. Morgan Stanley and Goldman Sachs also announced cryptocurrency investment services for their wealthy clients. In addition to allowing the purchase, sale and storage of cryptocurrency, PayPal, the global payment giant, also allows bitcoin settlement on its traditional payment platform.

Investors will continue to focus on whether rising prices are transitional or sustainable. They will also try to understand how long the Fed's ultra loose stance will last, including $120 billion a month in purchases of government bonds and mortgage-backed securities. At present, the US central bank has made it clear that it does not want to raise interest rates before 2024. Compared with the special currency, this position is still good for the long term.

(2021-4-15)