Investing.com – The price edged lower on Friday but still held above $63,500 as high inflation in the US and much of the developed world is continuing to support major cryptocurrencies.
Is Bitcoin an inflation hedge?
Bitcoin is often viewed by its supporters as a hedge for inflation given its limited supply. One of the main characteristics of Bitcoin is its limited supply with the total number of Bitcoin capped at 21 million. The scarcity, in theory, should control inflation that might arise from an unlimited supply of the currency.
However, it is still inconclusive whether Bitcoin is a suitable hedge for inflation. Higher-risk assets, such as Bitcoin and other cryptocurrencies, have benefitted from low interest rates and the Fed’s large scale quantitative easing programme.
Following this week’s US inflation print, where increased 6.2% YoY in the latest month, the likelihood of an earlier than expected interest rate hike and faster tapering of bond buys has increased.
Therefore, higher inflation may weigh on the price of Bitcoin as the ‘punch-bowl’ is gradually removed.
After the CPI data this week, Bitcoin initially shot higher but reversed course later in the trading session.
“Bitcoin’s price action following the record inflation numbers left traders scrambling to decipher if it can sustain its value during times of high inflation,” wrote cryptocurrency data science firm intotheblock.
Looking forward, this weekend could see Bitcoin’s Taproot upgrade take place.
According to the website taproot.watch, Taproot is a soft-fork to the Bitcoin network that will improve the scripting capabilities and privacy. The upgrade will expand on Bitcoin’s smart contract flexibility, while offering more privacy in doing so by only revealing the relevant parts of the contract when spending.
The website nicehash.com currently expects the upgrade to take place on 14th November at 05:59UTC.
Whether the upgrade will have an immediate impact on the price of Bitcoin is unclear but some analysts have suggested that the current high price has been supported by the upcoming network update.
“This is the largest upgrade since SegWit in 2017 and will improve a whole string of key functions,” said QCP Capital on Telegram. “We are keeping long BTC into this major event.”