Is Bitcoin Hedge Against Inflation

over 2 years ago

One of the main reasons people buy Bitcoin is that it is an asset class which will grow your money. Yes, it does have a close relation with inflation that helps it to grow its value which helps it to hedge against the inflation to protect. And this is the main pitch for Bitcoin since it has a cap of 21 million, the demand will increase when the supply reduces and thus the price value will increase.

But the problem is that with the recent inflation data coming out from the US which says that the inflation hits the 40 years high and thus all the stock markets have plumbed along with the Crypto. So it seems like the price movement of Bitcoin is still get affected by the inflation data and thus we can say that it is not a hedge against inflation. If we take both the stock market and crypto, both data show that they are moving ups and downs together.

PC: Glassnode, Bloomberg

So it is becoming clear that there is some relationship between Bitcoin and the stock market and thus they remain in sync. So whenever there is an increase in interest rate by the US or there is this inflation data, both the Stock Market as well as the Crypto plummets, but yeah we can say that if the Bull starts in Bitcoin the value it generates is much more than the Stock Market.

Also, Bitcoin is supposed to be a digital gold which means it is as effective as gold to store its value but it is not a reality, to be honest. Gold being a commodity is a hedge against inflation but that is not true for Bitcoin.

So, what are your thoughts on this?

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13 comments

@poshtoken 83

over 2 years ago

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@even.flow 25

over 2 years ago

It's not a good hedge against CPI inflation. For CPI inflation you want to own hard assets... Things you need on a daily basis.

If you're talking about asset price inflation sure, there's correlation there with indices and overall market liquidity deriving from QE, but it could break at any point.
The exception to the rule here is that the stronger the inflation in general, the more correlation one would likely find between just about anything that isn't the devalued currency and that rate of devaluation... but it isn't specific to BTC.

BTC is a highly speculative instrument which may at some point provide stronger real world value by serving as a medium of exchange, provided it finds some price stability or immense future levels of adoption.

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@codingdefined 75

over 2 years ago

BTC is a highly speculative instrument which may at some point provide stronger real world value by serving as a medium of exchange, provided it finds some price stability or immense future levels of adoption.

That's absolutely true and till that time BTC will remain volatile as per the news just like the stocks

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@chekohler 76

over 2 years ago

Prices don't adjust immediately because someone releases an inflation print, it first goes through producer price inflation, then gets passed on to the consumer, so CPI while manipulated is still a lagging indicator.

While bitcoin does trade in lock step with stocks, because large traders have their hand in booth pools, you can see overall annual appreciation (CAGR) is well above that of inflation while other assets arent

So yes it's an inflation hedge and a credit risk hedge which no one is pricing in

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@codingdefined 75

over 2 years ago

THE CAGR is good, there is no doubt about it, but again since it is closely associated with the FIAT currency mainly USD. If the value of USD is dropping, BTC is feeling the heat too.

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