The Fed will increase interest rates to combat inflation. Bitcoin continues to gain traction in Latin America as an inflationary hedge for the global economic system.

Central Banks Begin to Combat Inflation

The Fed now anticipates raising interest rates twice by the end of 2023. This is a shift from their previous stance of keeping interest rates unchanged. St. Louis Fed President Jim Bullard believes the first rate hike will come in 2022, largely due to the fact that there is “more inflation than we were expecting”. The updated guidance is largely due to optimism about the economic recovery and fears of runaway inflation. The committee also adjusted inflation forecasts upwards for the next three years, including an expectation of 3.4% inflation in 2021. The SEC has delayed its ruling on VanEck’s Bitcoin ETF for the second time, granting the regulator an additional 45 days to come to a decision. Russia, Brazil, and Turkey’s Central Banks will all be increasing interest rates, due to inflation concerns.

Large Financial Institutions Continue Adding Bitcoin Services

Paul Tudor Jones reiterated his positive Bitcoin sentiment on CNBC, stating that he “like[s] Bitcoin as a portfolio diversifier.” Tudor Jones now calls for a 5% allocation to the currency, as opposed to his previous recommendation of 2%. Goldman Sachs has begun trading Bitcoin futures through its partnership with Galaxy Digital. Spain’s second largest bank, BBVA, announced that they will be launching Bitcoin trading and custody services soon. Initially, the offering will only be available to a segment of the bank’s Swiss clients. Microstrategy filed a shelf registration with the SEC, which permits the company to sell up to $1 billion of Class A shares. There are several stated uses for the proceeds, although it's likely that “the acquisition of Bitcoin” will be the primary purpose.

Bitcoin Adoption Accelerates in Latin America

Paraguayan entertainment company Grupo Cinco will begin accepting Bitcoin as payment next month. Paraguayan congressman Carlos Antonio Rejala Helman announced that he will be presenting Bitcoin legislation next month, in hopes of accelerating adoption in the country. Panamanian congressman Gabriel Silva revealed plans to introduce legislation in July, which would incentivize companies to engage with cryptocurrencies and pave the way for the country to adopt Bitcoin as legal tender.

Bitcoin Mining Practices Are Being Affected By Regulation

The Taproot Bitcoin update has been locked in after receiving a signal of support from more than 90% of blocks mined during the most recent two-week difficulty period. At the same time, Sichuan is the latest Chinese province to crackdown on Bitcoin mining. The government has asked energy companies to stop supplying mining operations with energy, severely disrupting many large operations in the region. Miami is attempting to attract these displaced miners to the city by offering cheap and clean energy resources, as well as tax breaks for incoming Bitcoin miners.

Market Recap

The impacts of inflation are likely to be a key factor in most asset’s prices for the foreseeable future. Goldman Sachs and BBVA are making Bitcoin exposure more accessible for large and wealthy investors across the globe. Developments in El Salvador and the rest of Latin America will influence the perception of Bitcoin adoption at the national level.