How could stocks, bitcoin react to potential uptick of US inflation?

The CPI report suggests an increase in US inflation, which could be a bullish sign for risk-on assets like commodities and cryptocurrencies. However, the current situation is different as inflation is making a comeback while the Fed is reducing liquidity in the system. This uncertainty affects the impact of inflation on cryptocurrencies.

The decline in tech giants like Fortinet, Block Inc., PayPal, Shopify, and Palo Alto Networks has caught investors’ attention, especially due to the expectation of an additional interest rate hike by the FOMC on Sept. 20.

Economists predict a Consumer Price Index for July of around 3.3%, surpassing the previous month’s figure of 3% and exceeding the central bank’s 2% target. The unemployment rate of 3.5% in June is nearing a 40-year low, making the Fed’s move toward tightening the economy more certain. Gold, a traditional safe haven, has struggled to surpass the $2,000 mark on multiple occasions since 2020, indicating a lack of confidence in its ability to hedge against risks.

The real estate market has also been impacted, facing limited housing supply and rising mortgage rates. Traded assets like bonds are losing some of their appeal due to the ongoing increase in US federal debt.

A July 31 report by the US Treasury Department revealed a $1 trillion quarterly net borrowing estimate and an unexpected Fitch Ratings downgrade of US debt, further fueling financial market concerns. Investors are now seeking alternative markets, and Bitcoin whales have increased their leverage long positions using derivatives despite the cryptocurrency’s price remaining around $29,500.