What Happens to Bitcoin When Inflation Goes Up?

Inflation in the US is on the rise. What happens to the price of Bitcoin and other cryptocurrencies when this happens, and can it be avoided?

Bitcoin is tied to US macroeconomic trends more than investors give it credit for. While many still tout it as a hedge, inflation and other factors have a huge impact on its price. With rising levels in the US and across the globe, what will happen to Bitcoin once inflation goes up, and can it be avoided?

Current Inflationary Pressures

The BTC price shows just how turbulent the last week has been for the cryptocurrency. Last week, on Thursday, the 18th of September, it was trading at $117,656. Yet over the weekend, it dropped to $115,7906 and by Monday had reached $114,688. Currently, it is at $111,678 as of Thursday, the 25th, showing the impact negative economic data can have on Bitcoin.

Much of this dovish outlook came from an anticipated rate cut by the Fed. While it did arrive, signs were that few, if any, can be expected in 2026. This left many investors looking to inflation data to see how cryptocurrencies and Bitcoin may perform.

In its weekly report, crypto exchange Binance had warned how little impact FED rate cuts would have on crypto, and how inflation is a much more important metric to consider. They noted that these were the first-rate cuts in over 30 years with core PCE inflation above 2.9%, signalling a policy shift toward supporting employment. They also highlighted how the Fed’s new projections raised 2026 GDP growth to 1.6%–1.8% and inflation to 2.6%, highlighting cautious optimism on growth but persistent price pressures that could slow easing. These may not be the big boost people want, but they are positive.

Unfortunately, inflation data does not look as promising. In August, it had picked up to 2.9%, the highest rate since January. Food, used cars, and trucks were the main causes; however, energy also increased for the first time in seven months. The Consumer Price Index, which measures the value of goods, was higher than expected at 0.4%. Generally, a level of 2% is considered a fair rate of inflation.

What Happens to Risk Assets in a Time of Inflation?

Inflation is a measure of how much goods increase in value over time. This happens naturally, and is not always a bad thing when inflation is under control. When the price of goods outstrips wages, this can be bad, as people can purchase fewer things, and this harms the economy.

When this negative impact of inflation takes hold, it is generally liquid assets that tend to be more vulnerable. These are items that can be quickly sold and converted into cash, of which cryptocurrency is one. Assets that are not so liquid can also be impacted. Investors tend to move to these to protect against the costs of inflation, so government bonds and mutual funds tend to do well.

This has been evidenced in recent sell-offs, as the threat of inflation looms over the price of Bitcoin. On Monday, 22nd September, crypto sell-offs were triggered that took around $1.5bn off exchanges, many of which had been betting on the rise in BTC to USD.

What to Watch

After the Fed cuts did little to ignite a more bullish market, all eyes are now looking to the Personal Consumption Expenditure Data release on Friday, the 26th. This is important as it is the measure of inflation the Fed prefers to use when gauging if further rate cuts should take place. These are important as falling interest rates mean lower yields for certain assets like bonds, pushing investors towards riskier assets.

The tone will also be set by any comments made by Jerome Powell. After last week's decision, he has not made any statement, and an expected comment this week could hold the clue as to the future of further reductions. Previous comments involved him saying that there was no “risk-free path” in monetary policy. He discussed easing too quickly, holding back for too long, and other Fed spokespeople emphasised the need for a data-driven approach. This aversion to risk seems unlikely to have changed.

Binance noted that historically, Fed cuts near equity all-time highs have preceded 12-month rallies. If crypto mirrors this precedent, momentum could extend into Q4. However, they also highlight the importance of what they describe as 'sticky inflation' and fragile labor conditions. As evidence, they highlighted how bond market reactions reinforced this uncertainty, with the U.S. 10Y Treasury yield falling 0.64% while the VIX rose 3.29%.

Analysts are touting the $115,200 level as a key one to watch. A break below this risks a slide back into zones as low as $105,500. If it stays above, it may be able to threaten areas around its all-time high by the end of the year. Primarily, this will be based on inflation remaining contained and signals that further rate cuts are forthcoming.

Disclaimer: This article is published in association with Bazoom and not created by TNM Editorial.