‘People are chucking stuff like gold and Bitcoin’ as rising inflation leads investors to seek yield

Investors are divesting their holdings in Bitcoin and other cryptocurrencies due to rising inflation and expectations of higher interest rates, according to industry experts. Bitcoin's value plummeted over 4% to $68,500 in a single day, erasing gains from the past three months and raising questions about whether its bear market was truly over.

The crypto analytics firm CryptoQuant revealed that investor appetite for Bitcoin has weakened, with exchange-traded funds becoming net sellers once again. This decline extends to other cryptocurrencies, such as Tether's USDT, whose total value dropped by $7.7 billion over the past two months.

The Consumer Price Index report for October indicated that inflation rose by 0.4% in October, surpassing economists' predictions. Even excluding food and energy, inflation remained higher than anticipated. As a result, traders anticipate the Federal Reserve to raise interest rates by a quarter percentage point in December, with some expecting a larger increase.

Due to the non-yielding nature of cryptocurrencies and the expectation of rising inflation, investors are seeking yield in government bonds that provide income. Bitcoin is not the only asset experiencing a retreat; gold has also fallen near $3,900 an ounce, down from its January peak of about $5,600 and approximately 5% from a year ago.

The recent downturn in Bitcoin's price has dealt a blow to investors who had only recently recovered after months of losses. After reaching $86,000 in September, optimism faded following the midterm elections, which handed Democrats control of Congress, a setback for the crypto industry that relied on Republican allies for favorable legislation.

While Bitcoin remains connected to tech stocks, analysts emphasize that its performance is influenced by competition from AI spending and the Federal Reserve's interest rate policies. If heavy borrowing and AI sector investments weaken the economy enough, the Fed may reconsider its inflation-fighting strategies, potentially providing Bitcoin with some breathing room.