Is Bitcoin a Hedge Against Inflation?

Those who have been associated with bitcoin for a long time and those who have knowledge related to it will understand that last year saw a significant drop in the value of bitcoin, mainly due to the speculative nature of the bull market, and profit received by the investors. It has been a risky environment, which has dictated a large amount of deleveraging. As inflation numbers are heating up, central banks have started tightening their policies. We have all seen that the avalanche has started in this broader crypto industry, many are forced to sell their bitcoin coins to cover this loss again. If you are planning to invest in Bitcoin, you must also know about the Bitcoin Taproot upgrade. 

There are many enthusiasts associated with bitcoin who have made several arguments that they have undermined since this economic turmoil can be seen to be a fairly effective hedge against inflation. It has been argued by bitcoin advocates for a long time that it was only the scarcity that protected its value during its rising inflation. We are witnessing massive inflation globally, Bitcoin has become a bullish environment, reaching new highs. Considering Inflation Hedge Tracking the price of services and goods that we can buy regularly is very important.

About Hedge Against Inflation

Inflation hedging has become a well-known investment strategy for investors where you can store your crypto assets. If you are looking for an asset class or you want that currency depreciating purchase to protect the investment value, thereby generating inflation. These assets are considered inflation hedges, with the asset being expected to be in low correlation, its main purpose being to maintain value, most importantly in inflationary terms. Traditionally many precious metals, including gold and silver, are considered a very strong inflation hedge. It is rare enough to provide a benefit in the form of inflation over time that only happens when the supply of fiat currency increases. 

Over the years, bitcoin, also known as “Digital Gold”, has been seen by most people to emerge as an inflation hedge.

It has a fundamental drawback which is reducing the influence of central authorities on its value, which has become the main reason for companies to invest in bitcoin, and with it, the printing of money appears to be increasing. Inflation hedging assets like bitcoin, gold, and silver are becoming more expensive as we see an increase in the money supply.

Has Bitcoin Failed as an Inflation Hedge?

If we talk about the last few years, we all have seen an increase in consumer price inflation or price inflation is measured in that period as well as the losses incurred in buying bitcoins are also added. It’s about perspective, it’s a specific time frame, which isn’t offset in the face of observed increases in the prices of services or goods. Bitcoin has largely failed to counter global inflation in the past year if we can apply a review of it on a large scale that regards it as an inflation hedge.

Since the expansion of inflationary monetary, the prices to buy bitcoin began to rise. If you have bought bitcoin for a longer period you may have overtaken the compound inflation of the time frame. Keep in mind that the longer you hold bitcoin, the more quickly it will outgrow currency inflation. Bitcoin could be a great hedge against inflation if the observed steady increase in the money supply is seen, not only because of inflation but also by injecting the money supply into the economy. This value is considered a net stock of this asset. This type of asset carries a monetary premium because investors look for a good place to store their capital safely so that they are low concerned with the fundamentals.

Originally posted 2022-11-07 10:34:15.