Bitcoin Hasn’t Proven Inflation Hedge Yet, But Time Might Come Soon


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For years, the narrative surrounding Bitcoin (BTC) has been the narrative that portrays the digital asset as a hedge against monetary inflation. This is because inflation numbers have been on the rise across the board over the past couple of years, thanks in large part to governments printing copious amounts of their domestic cash assets to counter the financial devastation caused by the COVID-19 pandemic.

To put things in perspective, since the outbreak of the virus last year, President Biden’s stimulus tab has raised the total US debt to $5 trillion. Another way to visualize the enormity of these numbers is to consider that over the course of 2020 alone, the Federal Reserve issued more than 40% of the total US dollar currently in existence.

And while one might be led to believe that such astonishing data might have worked for Bitcoin to cement its place as a tangible long-term store of value in the eyes of many around the world, a recent report by crypto-analytics firm Chainalysis appears to suggest that Bitcoin It may not be the inflation hedge that many initially described. On this topic, Head of Research at Chainalysis Kim Grauer noted:

“Currently, we cannot show a statistically significant correlation between US inflation and bitcoin prices, but we know anecdotally that many people are investing in bitcoin as an inflation hedge.”

But this is not the end of the discussion.

It is not set in stone

Inflation figures remain a hot topic of debate, as evidenced by the fact that earlier this year in June, the personal consumption expenditures index – which serves as a leading indicator of the strength of US public spending – revealed that inflation numbers are currently at an all-time high. levels in more than a decade.

Thus, in order to gain a better understanding of whether BTC considers value as an inflation hedge may be fading out, Cointelegraph spoke with Bobby Zagota, CEO of crypto exchange Bitstamp US, who saw that “Bitcoin and cryptocurrencies as a whole asset class have grown beyond what they are.” After discussing whether it is just a hedge against inflation.”

Matt Luczynski, CEO of multi-chain NFT marketplace told Cointelegraph that there is no doubt that Bitcoin is a good long-term store of value when one looks at the economic structure underlying the traditional banking setup, adding:

“He. She [Bitcoin] It provides greater value, stability and security than any existing currency/asset backed by the central government. There is no doubt that there are early adopters who are essentially controlling the market in terms of price action, but over time this will eventually come to an end as the decentralized supply continues to grow in more and more hands.”

However, he acknowledged that for digital assets to gain more importance as a store of value or as a hedge, the crypto market as a whole must become more mature. “He. She [Bitcoin] On the right track and moving in the right direction. In my opinion, it’s a long-running play,” Luczynski concluded by saying.

A closer look at the anti-hedge argument

Iqbal Gandham, vice president of transactions and payments at Ledger, told Cointelegraph that given the current situation, the average investor doesn’t see bitcoin as their primary bet against domestic securities dilution.

Having said that, there is a good chance that such a narrative could change drastically, but it could take at least a few years for it to happen: [BTC] To be a long-term store of value, it must keep pace with inflation and pressure on price volatility. This will only happen as adoption increases and price finds a new standard.”

Anton Bokov, co-founder of the decentralized exchange aggregator 1inch network, told Cointelegraph that cryptocurrency remains a risky asset class, with many professionals and ordinary investors still not entirely sure about the future of the industry as a whole.

However, with a growing army of casual users and apparently institutional investors entering the fray, Bokov believes there is ample reason to believe that Bitcoin will undoubtedly be able to fulfill the role of SOV in the eyes of many in the future:

“After nearly 13 years, Bitcoin has become an integral part of the modern world. I believe that BTC will retain its “digital gold.” Currently, there are over 56 millionaire Americans on farms who have access to 21 million BTC that can be mined from anywhere. time, so it seems to me that it is almost impossible to lose its identity as a store of value.”

It’s all about the long-running game

According to Nicholas Merten, CEO of financial platform Digifox and founder of the YouTube channel DataDash, one of the many mistakes most people make when criticizing the Bitcoin store for value narratives is that they expect immediate results in relation to various macro events.

For example, he highlighted that if one were to take into account the recent halving of BTC – which occurs every four years – most people would claim that the price effects of these events are usually “calculated” before they happen. “But as we know, time and time again, the market is dealt with seismic advances after halving each time,” he added.

Merten also argues that people who hedge against inflation should take time to identify the assets they really want to allocate their capital to, a decision-making process that can often lead to changes and delays in asset prices. he added:

“A great example of this in traditional markets is the performance adjustment of the S&P 500 through the M3 money supply. You will see that it took 1 year and 5 months for the S&P 500 to reconsider its previous inflation-adjusted assessment; does that mean stocks fail to help store value? ? In my opinion, no — stocks generally outperform holding dollars in a bank.”

I look ahead

While the US inflation numbers may look quite bleak at the moment, it must be emphasized that other smaller countries such as Zimbabwe and Venezuela have been on the receiving end of devaluation numbers that are completely unfathomable to many.

Related: Diminishing Returns: Is Bitcoin Underperforming Compared to Altcoins?

In 2019, for example, Venezuela experienced a massive rise in inflation of 10,000,000%, rendering the country’s local currency, the bolivar, almost useless. As a result, reports at the time seemed to indicate that interest in digital assets had grown in tandem with this rise in inflation numbers.

“We know that in other countries with severe currency inflation or currency devaluation such as Venezuela and Nigeria, people are using cryptocurrencies as a store of value,” Grauer noted.

As such, although the Bitcoin steady supply narrative continues to show that the digital currency can indeed be viewed as a major store of value, events such as the price crash across markets in May seem to have called this narrative into question. Therefore, it will be interesting to see if Bitcoin proves that it can embark on its own path, regardless of other risks to assets, such as stocks.