Bitcoin and Gold Slide as Hotter Inflation Drives Investors Toward Yield

Bitcoin sank more than 4% on Friday to $68,500, erasing gains built over the past three months as hotter-than-expected inflation pushed investors toward income-generating U.S. government bonds. Gold also extended its decline, trading near $3,900 an ounce compared to its January peak of roughly $5,600, according to figures from Trading Economics. Rising yields make non-interest-bearing assets less competitive for everyday investors, while sticky inflation continues to pressure household budgets. What to watch next: The Federal Reserve's December policy meeting, where traders overwhelmingly expect a quarter-point interest rate hike.

The downturn followed Tuesday's Consumer Price Index report, which showed consumer prices increased 0.4% in October, exceeding economist forecasts. Core inflation, which strips out food and energy, also ran above projections. Analytics provider CryptoQuant reported that its Bitcoin demand indicator reached its weakest reading since December 2023, while Bitcoin exchange-traded funds shifted back to net selling. In addition, the market value of Tether's USDT stablecoin shrank by $7.7 billion over the past two months, pointing to declining liquidity across crypto markets.

Broader economic trends and political developments are adding further pressure. Although Democrats won control of Congress in the midterm elections, analysts at 21Shares noted the result was anticipated and maintains short-term regulatory predictability. However, massive capital spending in artificial intelligence is creating an "AI black hole" that diverts investment away from gold and cryptocurrencies, according to 21Shares. Market analyst firm IG Group added that while AI sector growth competes with Bitcoin for funds, it also helps support broader economic strength, giving the Fed room to maintain higher interest rates.