- Bitcoin rose back above $36,000 Wednesday, boosted by El Salvador’s move to make the cryptocurrency legal tender.
- Persistent inflationary pressures may have also encouraged investors to add exposure to the digital asset.
- Once bitcoin breaks through $38,000, it may signal an upward trend towards $47,000, an expert said.
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The price of the world’s most popular cryptocurrency rose back above $36,000 Wednesday, boosted by El Salvador’s historic move in becoming the first country to establish bitcoin as a legal tender. Persistent inflationary pressures may have also encouraged investors to flock to the asset, which some view as an inflation hedge.
Bitcoin rose to $36,840 at around 1:24 p.m. ET Wednesday, rising 17% from the intraday low the previous day. It has lost almost 50% of its value since hitting an all-time high of nearly $65,000 in April.
“This current market pause is not unexpected. Everyone needs time to assess and digest what the community has built,” Paolo Ardoino, CTO of Bitfinex, a cryptocurrency exchange said. “I’m still extremely bullish in the long term about bitcoin and the long-term fundamentals and use cases of the technology.”
Tim Frost, founder of fintech firm Yield, said if bitcoin can break through $38,000, it may signal an upward trend toward its medium-term average of around $47,000 and potentially beyond.
The congress of El Salvador on Wednesday voted in favor of bitcoin becoming legal tender in the country, cheered on by President Nayib Bukele. Once the law passes through the legislative processes, bitcoin will have the same status as the US dollar – the country’s current national currency.
Bitcoin by then will automatically and immediately be converted into US dollars upon use.
-Nayib Bukele ???????? (@nayibbukele) June 9, 2021
Meanwhile, investors are anticipating US Consumer Price Index data on Thursday, which is expected to show inflation picked up faster than April’s pace, which was already the highest reading since 2008. The European Central Bank will also meet the same day.
Several economists including those at Deutsche Bank have said inflation will make a comeback if the Federal Reserve sticks to its current policy of keeping interest rates historically low.
“We expect inflationary pressures to re-emerge as the Fed continues with its policy of patience,” the bank’s economists on Monday said. “It may take a year longer until 2023 but inflation will re-emerge.”
Beyond these, John Wu, president of Ava Labs, the team behind altcoin avalanche, said that as bitcoin becomes more mainstream thanks to institutional adoption, the more closely it becomes correlated to traditional asset classes.
“Bitcoin was the first crypto to feel this impact and begin to recover,” Wu said. “We’re now seeing it ripple through the rest of the crypto markets.”