UK core inflation reached 6.8% in April, the highest since 1992. crypto slate reported in a recent insight. This surge in inflation has come on the back of more than 40 years of declining interest rates and has fueled asset bubbles across the board.
Core inflation represents changes in the cost of goods and services, excluding items within the food and energy sectors. With unemployment below 4%, the UK is experiencing its weakest labor market in over 25 years, so this inflation rate remains stronger than overall headline inflation.
A sharp rise in core inflation sent bond yields soaring that 10-year Treasury yields broke the 40-year trend line. This has raised concerns about the impact on financial markets, mainly as debt levels exceeded 100% of GDP. In this context, it is important to explore the potential impact of accelerating inflation in the UK on cryptocurrency markets, especially Bitcoin (BTC).
Inflation Uncertainty Drives Bitcoin Adoption
Over the past year, investors have preferred bitcoin to fiat currency during periods of high uncertainty. For example, the Turkish lira has been declining continuously since 2018, with cumulative inflation exceeding 100% over the past three years. The devaluation prompted Turkish investors to diversify their assets and significantly increased BTC/TRY trading volume.
Similarly, the British pound experienced a flash crash on September 26, 2022, losing 4.3% of its value against the US dollar in one day. The Bank of England’s emergency intervention in the bond market set BTC/GBP’s trading volume to a record high, surging over 1,200% in just 24 hours.
These examples demonstrate a growing trend among investors around the world. Bitcoin is increasingly seen as a safe haven in times of macro uncertainty, inflation and fiat currency depreciation.
Leveling the playing field for volatility
Investors in the region may adopt a similar approach, turning to Bitcoin as a hedge against rising consumer prices, given that UK core inflation is soaring. This change could increase trading volume and overall interest in BTC, especially among investors looking to protect their assets from declining value.
Rising fiat volatility, driven largely by inflation, could effectively level the traditionally perceived field of crypto volatility. As a result, the distinction between traditional currency stability and digital asset volatility is becoming less pronounced, changing the way investors perceive and approach both financial spheres.