The price rally is settling the debate over whether bitcoin is an effective asset to hedge against inflation. It is only necessary to cross graphs to observe how the world’s largest digital currency defeats by a landslide the price rise since 2011. While the usual thing with a traditional currency is that it depreciates in the face of inflation, bitcoin has generated deflation, placing the rate of inflation at -99.996%. For his followers there is his great value in not being able to suffer a devaluation by a central bank. For other experts, the litmus test of how it will behave if the price spiral knocks down the stock market is missing.
One of the flags of bitcoin since its origin is the shield it offers against inflation. Its defenders argue that unlike dollars or any other traditional currency, crypto is designed to have a limited supply, so it cannot be devalued by a central bank with its monetary policies.
With inflation soaring in the US, Bloomberg analyst John Authers has turned from theory to charts to test bitcoin’s shield against price escalation. During the last decade, the main consumer price index has increased by approximately 28%. If that same calculation is made taking bitcoin as the reference currency to calculate the CPI, it shows how the inflation rate is at -99.996%.
In practice, it assumes that a US citizen who has had bitcoins for ten years has only lost 0.004%. That is to say, Bitcoin has gone from trading at $ 0.3 to around $ 65,000 in the last decade. Many notable Wall Street investors and analysts have begun to embrace the inflation safe haven end. Veteran hedge fund manager Paul Tudor Jones has said he likes it primarily as wealth protection. Tesla and MicroStrategy have invested part of their working capital in bitcoin
Economists at Bloomberg Economics estimate that about half of bitcoin’s recent returns can be explained by inflation fears, with the other half coming from market exuberance and trade momentum. “Our model shows that for Bitcoin, the importance of inflation and hedging against uncertainty have become the main catalyst,” comment Björn van Roye and Tom Orlik. representing 50% of price movements in the last cycle compared to 20% in 2017, “they said in a recent note.
For believers in bitcoin, there is another devastating graph that highlights the security it offers in the face of inflation, economic crises and the risk of central bank monetary policy. Strahinja Savic, head of data and analytics at crypto derivatives provider FRNT Financial comments that another way to illustrate inflation protection is to chart the Fed’s balance sheet expansion versus the supply of the digital currency.
“Not only is the dilution of bitcoin much less aggressive than the dollar over the past six years, it is also much more consistent, not susceptible to political vagaries, and of course predictable,” he explains. “The programmed predictability contrasts with the uncertain political decisions that affect the dollar.” Bitcoin has a fixed limit of 21 million coins in circulation. Currently, mining amounts to around 19 million, but its production is becoming more and more complicated.