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BTC Inflation is heating again, with Bitcoin under short-term pressure but complex long-term prospects
Industrial Producer Price Index (PPI) data released on Thursday once again confirmed that inflation is intensifying. Treasury yields are approaching 5%, and the U.S. government is trying to stabilize bond markets while proposing another trillion-dollar stimulus plan.
The direct impact on Bitcoin is negative. However, from a longer-term perspective, the situation seems quite complex.
Short-term negative impact on BTC
Producer prices rose 5.4% year-on-year in August, slightly higher than market expectations. At the same time, Brent crude oil prices exceeded the $100 mark this week as the situation in the Middle East showed no substantial improvement and supply disruptions continued. According to data from the futures market and some forecasting platforms, the probability of raising interest rates after the Federal Reserve meeting on September 16 has exceeded 70%.
Although the Treasury Department has been working to improve the liquidity of long-term government debt, the yield on 10-year U.S. bonds has climbed to nearly 5%. Normally, higher yields mean tighter financial conditions and greater incentives to hold relatively safe government debt, while for Bitcoin bulls, it means weaker demand for speculative assets.
This helps explain why Bitcoin's initial rally from below $65,000 to $82,000 has encountered resistance and has failed to break through further in the past few weeks. However, this is only half of the story.
Long-term bullish logic
It was previously reported that the Treasury initially doubled the amount of long-term repo operations from $2 billion to at least $4 billion each time (implemented on August 19), triggering the first round of gains in Bitcoin. At the same time, long-term yields fell immediately and the dollar weakened.
Earlier this week, the Treasury went one step further and increased the purchase to US$6 billion. Now, there is a proposal put forward by former President Trump: if Republicans retain control of Congress in the November election, each American adult will receive $5000. It is estimated that the cost of the move could be between $1.2 trillion and $1.35 trillion and would require congressional approval.
Analysts at Kobeissi Letter described this as an "unprecedented" situation. We are facing a situation where inflation remains high, making it difficult for the Federal Reserve to relax monetary policy, while huge deficits and rising interest costs are also putting pressure on reducing borrowing costs.
Kobeissi Letter believes that these forces will benefit asset owners and specifically points out Bitcoin, gold and stocks. However, this does not guarantee that Bitcoin will automatically prosper in the current economic structure. In fact, the road ahead may be painful at first.
If inflation continues to rise and the Federal Reserve takes further measures to raise interest rates, Bitcoin may face greater pressure as yields rise. But if fiscal pressure ultimately forces policymakers to intervene more vigorously, relax financial conditions or expand regular spending policies, a bullish narrative will emerge later.
