Need An Inflation Hedge? Bitcoin Has Delivered 99.996% Deflation

On Wednesday, US inflation data will be much hotter than expected. Once the numbers hit Bitcoin, Bitcoin hit a record high. Game?

For many, the world’s largest digital asset is unlikely to provide a large hedge against rising economic prices, as has long been predicted.

The main points of discussion are as follows. Unlike dollars and other traditional currencies, digital coins are designed to be limited in supply so they are not devalued by large distributions from governments or central banks.

One way to test your dissertation is to record the price of the United States against Bitcoin. Calculations were made by John Authers of Bloomberg Opinion.

Over the past decade, the major consumer price indexes have increased by about 28%, and their representation in Bitcoin shows a deflation of 99.996%. In other words, 10 years ago the price of 1 Bitcoin would have been 0.004 satoshi, or the unit price of the smaller cryptocurrency currently trading around $65,000.

The debate about Bitcoin as an inflation hedge has been around since the token’s creation after the Great Recession in 2009. The assumption is gaining momentum as prices from food to gasoline to homes move faster and more persistently than many economists had expected in recent months.

Consumer prices in the United States are rising faster than ever since 1990, data showed Wednesday, effectively exacerbating high inflation that characterizes the pandemic recovery.

Many prominent Wall Street investors and analysts agree with the idea of ​​using cryptocurrencies to hedge against rising prices. Veteran hedge fund manager Paul Tudor Jones has said in the past that he likes it as a store of wealth. Meanwhile, MicroStrategy Inc. Michael Sailor said the Federal Reserve has relaxed inflation policy and convinced enterprise software makers to invest in Bitcoin.

Bloomberg Economics economists estimate that about half of Bitcoin’s recent returns can be explained by inflation concerns and the other half stemming from the market’s fast-paced trading. “Our model shows that the importance of hedging against inflation and uncertainty has become an increasingly important impetus for Bitcoin over time, with price fluctuations in the last cycle versus 20% in 2017. This suggests it is 50%”, said Björn van Roy and Tom Orick. Recent notes.

Cryptocurrency provider FRNT Financial Inc. Another way to explain Bitcoin and Fiat currency inflation protection is to expand the federal balance sheet and coin range, said Strahinja Savic, head of the data and analytics department. growth.

“Over the past six years, Bitcoin’s decline has not only been much more aggressive than the US dollar, but it has also been much more consistent, unaffected by political whims and, of course, predictable,” he said. I mentioned it in the email. “Bitcoin’s programmed predictability contrasts with the uncertain policy choices that affect the dollar.

However, there are many counter-arguments. In particular, there is not enough time to determine that Bitcoin can reliably act as a hedge in the face of rising prices.

Wilfred Day, head of Securitize Capital, Securitize Inc.’s asset management division, said, “But bitcoin as an inflation hedge is a new sexy concept – people love new ideas,” he said, adding that its high volatility also fuels inflation. safe debate.

In theory, there is no link between the supply of Bitcoin and what happens at the Federal Reserve or central bank, said Kamharvi, a professor at Duke University and a research partner. In other words, it should not be affected by global inflation policies. In addition, the price of Bitcoin fluctuates a lot – and there is no inflation in the long term, he said.

Bitcoin has the potential to maintain its value in the very long term. In his studies of gold, Harvey found that gold retains its value well over thousands of years. But he also found that he was prone to mania and passed out in less time.

After all, Bitcoin does not behave as if it were separate from everything else in the economy. “He’s acting like a speculative asset,” Harvey said on the phone. He cited the coin’s decline in March 2020, when the coin’s value fell by about half as US stocks fell.

“Investors need to be careful to believe that bitcoin distributions will provide protection against inflation in the short term. If inflation rises unexpectedly, that’s bad for stocks. Because,” he said. “And when something goes wrong with a stock, it can lead to trades that are different from risk.