Inflation rises to 2.6% in October, sparking a Bitcoin rally. Bitcoin and stocks may be re-coupling as institutional interest grows - IcoHolder.

In October, U.S. inflation saw a slight rise, reaching 2.6%, according to the latest data from the U.S. Bureau of Labor Statistics. This marks the end of an eight-month period of decline from 3.5% in March, signaling potential changes in the economic landscape. The rise in inflation coincides with a sharp rebound in Bitcoin and U.S. stock markets, sparking speculation about whether these assets are starting to re-couple.

The Consumer Price Index (CPI), which measures inflation by tracking the price of a standard basket of consumer goods, had steadily fallen from 3.5% in March to a low of 2.4% in September. This decline prompted the Federal Reserve to cut interest rates in September, a decision that likely contributed to the subsequent upward movement in Bitcoin’s price as well as stock markets. Over the past month, both the S&P 500 and Bitcoin have surged, with the latter setting a new all-time high above $93,000 following the U.S. elections on November 5.

Bitcoin’s Recovery: The Price Surge Continues

For Bitcoin, the rise in inflation is seen as a potential driver for the cryptocurrency’s continued ascent. After months of lackluster performance, Bitcoin began climbing again in October, hitting a fresh peak. Analysts, including those from Santiment, are predicting a Bitcoin rally well into the six-figure range in 2025, with price targets of $150,000 or even $200,000.

This expectation comes after a period of declining inflation, which had hindered Bitcoin’s performance relative to traditional assets. Between March and September, while the CPI fell, Bitcoin’s price took a downturn, dropping by 1.53%. In contrast, the S&P 500 gained over 8.5%. However, with inflation on the rise once again, many are now wondering if Bitcoin will continue its bullish trajectory alongside traditional equities.

Re-Coupling of Stocks and Bitcoin?

One of the key questions emerging from recent market movements is whether Bitcoin and stocks are starting to re-couple, as they did in the past. The correlation between Bitcoin and U.S. stocks has fluctuated throughout the year, but recent data suggests they may be moving in sync once again.

The 30-day Pearson correlation for Bitcoin reached a 44-month high of 0.89 in late September, indicating a strong positive correlation with stock market movements. While it temporarily dipped to 0.49 around the U.S. elections, the figure bounced back to 0.80 following the release of the latest CPI data.

The increasing institutional interest in both Bitcoin and stocks is a major factor behind this renewed correlation. Firms like BlackRock have continued to invest heavily in Bitcoin, with over $4.7 billion in Bitcoin ETFs sold between November 6 and 13, followed by strategic purchases. BlackRock’s willingness to buy the dip demonstrates confidence in Bitcoin’s long-term value, contributing to the growing alignment between Bitcoin and traditional financial assets.

Looking Ahead: What’s Next for Bitcoin and Stocks?

As inflation trends upward and institutional support for Bitcoin strengthens, both Bitcoin and stock markets may continue to grow together in the coming months. Bitcoin’s potential to reach new heights, coupled with the possibility of a bull market for dollar-denominated assets, suggests that investors may be in for a profitable period ahead.

With Bitcoin already showing signs of a rally towards $100,000 by the end of 2024, as predicted by Bitcoin ETF issuer VanEck, the question remains: will the digital asset maintain its momentum, or will it face resistance as inflation and market conditions evolve? For now, many are watching closely as Bitcoin and stocks seem poised for a new chapter in their intertwined journey.