US inflation to spur Fed hawks, Bitcoin aims record

Bitcoin could renew record ahead of Wednesday’s much-expected Coinbase IPO, as a good debut for Coinbase in Nasdaq will mark the first official juncture between the traditional financial avenue and the alternative crypto path. As such, a successful addition to Nasdaq should act as endorsement of cryptocurrencies by traditional investors, and Bitcoin is the symbol of cryptocurrencies that should reflect the joy of cryptocurrencies having reached an important milestone.  

Other interesting news came from Binance, which launches stock tokens on its exchange to allow investors to buy a fraction of a share that trades on a traditional stock exchange. Binance will hold a portfolio of underlying shares to back the tokens. The latter developments are a sign that the cryptocurrencies are drilling their way to the traditional finance, and could soon be a competition for banks.  

It’s important to note that the news is not necessarily positive for Bitcoin, though it is for the cryptocurrency exchanges, and particularly for Coinbase this week. 

But Bitcoin, the symbol of cryptocurrencies, will continue benefiting from this crypto-mania until investors realize that the first cryptocurrency acts as a cover page to the crypto-chapter, without however being essential to the existence of the cryptocurrencies.  

That’s why the risk of seeing the Bitcoin’s price bubble burst remains strong despite the positive sector-wise developments.  

Now, one advantage of being long in Bitcoin is that it won’t be shaken by a potentially strong inflation data in the US. Yes, we need to have a serious inflation talk today because the US will release its latest inflation figure and today could be the day we start seeing inflation take off in the US. The latest producer price data suggested a jump in factory-gate prices above 4% year-on-year, on the back of higher energy costs and the global chip shortage. It is a matter of time before the sensibly higher production costs began reflecting in consumer prices. According to a consensus of analyst expectations, the US inflation may have jumped to 2.5% y-o-y in March, from 1.7% printed a month earlier.  

The market reaction to the inflation data will of course depend on the strength of the data, but also on how much investors are ready to buy into Jerome Powell’s prediction that higher inflation won’t last long enough to compromise the Federal Reserve’s (Fed) inflation target of an average of 2%. Jerome Powell will continue repeating that inflation is not an issue in the longer run. If there is a chance that an acceleration to 2.5% is already priced in, and could be stomached by an average investor, a release above 2.5% could spur panic, and the Fed hawks, push the US yields and the US dollar higher, and send the US stock indices, especially the teck stocks lower. The major US indices closed Monday’s session slightly lower, with tech stocks leading losses. Activity on US futures hint that investors do not walk serenely into the data release.  

The US 10-year yield flirts with the 1.70% mark.  

Gold, the best-known hedge against inflation, could benefit from the rising US inflation, if and only if the positive pressure on the US yields remains contained.