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Bitcoin is in recovery mode on Wednesday amid mounting inflation concerns and hopes of mass adoption after El Salvador’s parliament approved the cryptocurrency as legal tender.
The cryptocurrency was changing hands nearly $ 34,000 at the time of publication, after resuming an offer of nearly $ 31,000 on Tuesday night. This is the lowest level since May 23, according to data from CoinDesk 20.
Data released by China earlier today showed that the Producer Price Index (PPI), also known as factory exit inflation, rose 9% last month, the most strong year-on-year increase since September 2008.
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China’s PPI typically adds to inflationary pressures around the world as the country is a major buyer and supplier globally. “Rising costs everywhere, especially in China, will add to global inflationary pressures,” Credit Agricole economist Dariusz Kowalczyk told the Financial Times. “I think we’re going to live with higher inflation globally, and what’s going on in China will help.”
This is bullish for bitcoin, which is widely seen as a hedge against inflation as the pace of its supply expansion is halved every four years.
However, large gains may remain elusive for some time amid concerns that policymakers around the world could raise interest rates or cut back on liquidity-boosting asset purchase programs to contain inflation, a process known as progressive reduction. Monetary tightening tends to dilute the attractiveness of stores of valuable assets like bitcoin and gold.
China is already sucking liquidity from the system, as Caixin Global noted. Meanwhile, the US Federal Reserve’s accommodative monetary policy has come under criticism in recent weeks, with many experts saying it is not appropriate amid concerns about rising inflation.
Related: Bitcoin Holds Short Term Support; Facing resistance at $ 36,000
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“Concerns about the current Fed policy stance started with a few and now turns into an avalanche of former central bank officials, economists and market players – and rightly so,” Mohamed El-Erian, chief economic adviser of the German financial bank. Allianz company, tweeted.
Discussions on tapering could intensify if the US consumer price index, due for release on Thursday, exceeds expectations. These concerns are here to stay, as Mira Christanto de Messari recently noted, and could prevent the market from encouraging other positive developments like the adoption of bitcoin in El Salvador.
The Salvadoran parliament approved bitcoin as legal tender early on Wednesday, forcing all companies to accept bitcoin for goods and services. This move raised hopes of widespread sovereign adoption.
Other countries, however, may choose to see how things play out in the Latin American country before they follow its lead.
Also Read: Paraguay Could Be Next To Court Crypto Firms With July Bill
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