Giles Coghlan LLB, Lth, MA
Financial Source
One of the strong arguments Bitcoin advocates have made is that Bitcoin provides a good hedge against inflation. However, what are the pros and cons of the argument? Last week a Bloomberg piece put up a few of these arguments and it is worth looking at them here.
The pros
Recency
US CPI surged last week and this sent Bitcoin higher along with gold prices. Surely this is proof enough that Bitcoin is an inflation hedge.
Supply
Bitcoin has a maximum supply of 21 million or so coins. So, unlike traditional currencies, it can’t be de-valued by just ‘creating more coins’. It is a natural store of value. Paul Tudor Jones has expressed interest in BTC in part, for this reason, seeing it as a store of wealth.
Look here at the Fed’s balance sheet expansion versus the amount of Bitcoin in circulation to illustrate this point
Growing inflation fears
Bloomberg economists with Bloomberg Economics put forward that around 50% of Bitcoin’s recent returns can be explained by inflation fears:
“Our model shows that for Bitcoin, the importance of inflation and hedging against uncertainty become more important drivers over time, accounting for 50% of price moves in the latest cycle relative to 20% in 2017.”
The cons
Recency
Too early to say that Bitcoin is in an inflation hedge. It sits firmly in gold’s shadow in that regard.
Speculative nature
Around March of 2021 BTC lost around 50% of its value. This is speculative volatility.
The takeaway
BTC volatility appears to be falling. However, the speculative nature of BTC is a compelling argument to watch out for any risk-off moves to hit BTC prices. It is hard to choose BTC over gold just because gold has such a long track record. Will people feel confident doing that for a large portfolio? No, probably not, except under the category of speculative asset. At these prices, the value is limited apart from entering the smartest of technical areas.
Our products and commentary provides general advice that do not take into account your personal objectives, financial situation or needs. The content of this website must not be construed as personal advice.
Recommended Content
Editors’ Picks
PENDLE price soars 10% after Arthur Hayes’ optimism on Pendle derivative exchange
Pendle (PENDLE) price is among the top performers in the cryptocurrency market today, posting double-digit gains. Its peers in the altcoin space are not as forthcoming even as the market enjoys bullish sentiment inspired by Bitcoin (BTC) price.
Ethereum shows signs of a potential rally as suspected Justin Sun wallet buys heavily
Ethereum's (ETH) recent price movement hints at a potential rally despite ETH ETPs recording outflows. The recent price improvement follows the fourth Bitcoin halving and a suspected Justin Sun wallet purchasing large numbers of ETH.
Floki poised for growth after listing on Revolut
Floki's (FLOKI) team announced in an X post on Monday that the meme coin would be listed on the popular neobank and Fintech platform Revolut. Floki could rise further following key partnerships to boost retail usage.
Jupiter DEX second Launchpad vote concludes, JUP price rises 5%
Jupiter, a Solana-based decentralized exchange (DEX) has completed the second launchpad (LFG) vote to identify the two projects that will debut on its platform. On March 30, the aggregator network had unveiled its Core Working Group (CWG) budget proposal voting.
Bitcoin: BTC post-halving rally could be partially priced in Premium
Bitcoin (BTC) price briefly slipped below the $60,000 level for the last three days, attracting buyers in this area as the fourth BTC halving is due in a few hours. Is the halving priced in for Bitcoin? Or will the pioneer crypto note more gains in the coming days?