In its latest post on CryptoQuant, XWIN Research Japan examines how developments in the US could impact the trajectory of Bitcoin and other risk assets in the near term. Concerns are beginning to emerge about a potential period of stagflation, which could either boost or hinder Bitcoin’s growth, the school said.
Unemployment rate rises to 4% due to rising inflation
For context, stagflation is an unusual economic condition that combines two worrying events at the same time: high inflation and high unemployment. In a QuickTake post on CryptoQuant, XWIN Research Japan revealed that the number of employed people in the US decreased by 92,000 in February, and the unemployment rate increased by 4%.
This was followed by a geopolitical confrontation between the United States and Israel, which led to heightened tensions within the United States. The conflict has caused oil prices to rise, making energy sources even more expensive. According to XWIN Research Japan, this increase in energy costs could lead to significant inflation, completing the equation of stagflation.
Notably, a common historical example of stagflation occurred in the United States during the oil shocks of the 1970s. Inflation soared into double digits and unemployment followed such a devastating path. Inflation was eventually reined in by Fed Chairman Paul Volcker, who raised interest rates to nearly 20%, resulting in a deep recession, according to XWIN Research.
How Bitcoin adapted to past stagflation periods
XWIN Research Japan further points out that the relationship between Bitcoin and US stagflation is not a linear or direct relationship, but rather a complex one.
Analysts say the early stages of stagflation are characterized by headwinds for risky assets. When inflation spikes (as we saw in 2022), both Nasdaq and Bitcoin prices fall sharply, indicating that Bitcoin has earned the title of high-beta asset.
However, this situation could quickly turn around if stagflation causes financial instability, as was the case with the 2023 US banking crisis. In this scenario, capital moved into high-risk assets like Bitcoin, sparking a bull market of over 80%. Additionally, Bitcoin’s unique supply structure must be considered when making predictions.
Unlike fiat currencies, Bitcoin issuance follows a fixed algorithm, with periodic halving events reducing the amount of new circulating supply. This means that Bitcoin’s inflation rate continues to decline, which could make Bitcoin more attractive in markets where traditional currencies are affected by inflation.
If this scenario holds true today, the Bitcoin market could see significant capital inflows in the medium term. As of this writing, Bitcoin is trading at $68,225, marking a loss of over 4% from the previous day.
Featured image from Flickr, chart from Tradingview
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