Bitcoin (CRYPTO: BTC) as an inflation hedge?
Or perhaps Ethereum (CRYPTO: ETH), or some of the other top cryptos?
With inflation ticking up fast in most developed nations, including Australia, it’s a question more investors are pondering as the outlook for the value of their dollars and euros begins to weaken.
Can Bitcoin serve as an inflation hedge?
The jury is still out on the long-term use of cryptos like Bitcoin to protect investors in times of fast rising prices.
Prices, of course, tend to be rated in fiat currencies. And the supplies of fiat currencies are theoretically unlimited.
Governments can, and do, print large quantities of their own currencies, generally through their central banks. If they run the presses too hot, inflation usually follows. Which is what much of the developed world is beginning to experience these past months.
Select cryptos like Bitcoin, on the other hand, have a fixed supply. There are only so many Bitcoin that can be mined. Then there’ll be no more. Granted, they can be broken down into much smaller units called satoshis (100 millionth of a Bitcoin). But unlike the US or Aussie dollar, you can’t create endlessly more with the press of a button.
Indeed, looking at the price history of Bitcoin, it’s far outrun inflation to date. Over the past 12 months, Bitcoin has gained 173% in Aussie dollar terms. And over the past 5 years it’s up 6,439%.
Take that inflation.
But that’s all hindsight now.
Whether Bitcoin can serve as a decent inflation hedge moving forward depends on who you ask.
What the experts are saying
On the pro-side for Bitcoin as inflation protection is Strahinja Savic, head of data and analytics at crypto derivatives provider FRNT Financial.
According to Savic (quoted by Bloomberg), “Not only is the dilution of Bitcoin much less aggressive than USD over the last six years, it’s also much more consistent, not susceptible to political whims and, of course, predictable. Bitcoin’s programmed predictability contrasts it from the uncertain policy decisions that impact the dollar.”
But head of Securitize Capital Wilfred Daye takes a more cautious approach. “We don’t have long enough history to assert Bitcoin is indeed an inflation hedge,” he said.
Josh Gilbert, crypto analyst at multi-asset investment platform eToro, agrees:
We’re currently in an environment where it’s more important to invest when we consider the inflation print experienced in the US. Bitcoin has been labelled an ‘inflation hedge’ by some. But the crypto asset is still in its infancy, and hasn’t been tested during a recession. Therefore, it can’t be considered as a hedge against inflation for now.