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🥁 UK Core Inflation Hits a 28-Year High

What this means for Bitcoin, Binance accused of commingling funds, and more!

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The BEN Team
May 25, 2023

Read time: 4 minutes | Total savings in this newsletter: $350

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UK Core Inflation Hits a 28-Year High

Oh boy, UK core inflation is soaring. It was just 2% less than two years ago, and now reached 6.8% in April, its highest since 1992.

High core inflation leads to high bond yields and increasing uncertainties.

In other countries, such times of uncertainty have pushed investors towards Bitcoin. For example, in Turkey, inflation has surpassed 100% over the past three years, and BTC/TRY trading volume increased significantly.

What is the difference between core inflation and inflation?

Core inflation is inflation calculated from the Consumer Price Index (CPI), and includes commodities, goods, and services, but excludes things like food and fuel, because those are more volatile. It’s supposed to be more stable and a better benchmark for deciding interest rates.

Increasing interest rates is supposed to help with inflation. With higher government-mandated interest rates, people spend less, demand goes down, and merchants price their goods lower.

This is important because UK’s inflation is actually down from 10.1% to 8.7% in April, while its core inflation is up to 6.8% from 6.2%.

Even though the UK’s inflation is down, it just means that prices will increase more slowly, not that prices will necessarily start going down. The UK’s inflation is still the highest among the G7 advanced nations, showing that it’s very reliant on imported energy and food.

How will the UK react?

High core inflation especially leads to high bond yields and increasing uncertainties.

Economists have raised the alarm that the Bank of England’s Monetary Policy Committee might raise interest rates again from 4.5%. The decision will come out on June 22nd. Investors are almost certain that there will be a quarter-percentage point increase.

In other countries, such times of uncertainty have pushed investors towards Bitcoin. For example, in Turkey, inflation surpassed 100% over the past three years, and BTC/TRY trading volume increased significantly.

Turkey has been reducing interest rates in the face of rising inflation, as their government believes that high interest rates cause high inflation, which goes against what most economists believe. The lira crashed from roughly 9 per dollar to 18.5 in six weeks mid-December 2021.

David Belle, founder of Macrodesiac.com and U.K. growth director at TradingView, told CoinDesk that “Lower interest rates amidst high inflation is going to lead to people selling the currency.”

In September 2022, the British pound flash crashed, losing 4.3% of its value against the U.S. dollar in a single day. The Bank of England intervened by buying £65 billion worth of UK bonds, and there was a record-breaking BTC/GBP trading volume of 1,200% in a 24 hour period.

Gabor Gurbacs, strategy advisor at investment giant VanEck, said that BTC will see “increased interest from the UK” very quickly.

According to data from James Butterfill, Head of Research at CoinShares, trade volume for the GBP/BTC pair on Bitstamp and Bitfinex exchanges hit a combined $881 million on Sept 26th. For reference, they usually only hit a combined $70 million per day, so it’s an increase of over 1,150%.

What happens next?

The massive increase in BTC/GBP trading volume has gotten reactions from influential figures such as Reacting, Saifedean Ammous, author of the famous book The Bitcoin Standard.

Orgs are stepping up to educate the UK about Bitcoin. The UK’s largest international Bitcoin Conference, held in Edinburgh, Scotland in Oct 2022, saw 800 attendees and was organized by the Bitcoin Collective, in partnership with crypto exchange OKX.

All of this was back in September of 2022. As we just discussed, core inflation has gotten worse since then, and interest rates are about to go up.

At best, the UK could become a Bitcoin hub where people are financially literate enough to know how to best protect their assets while inflation slows down with the increased interest rates. At worst, people will struggle holding onto a devaluing GBP while interest rates are increased and the price of everything around them increase as well.

Trending News 🗞️

3. Crypto giant Binance commingled customer funds and company revenue, former insiders say. Remember kids, commingling funds isn’t as fun as it sounds!

4. Biden won’t accept debt deal protecting crypto traders. He says it will hurt food assistance programs.

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