Bitcoin’s recent surge past $100,000 has reignited discussions about its role as a hedge against inflation. Proponents argue that Bitcoin’s fixed supply of 21 million coins makes it a potential safeguard against currency devaluation. However, empirical evidence presents a more nuanced picture.
A study published in The Journal of Finance found that Bitcoin’s price decreases by 24 basis points in response to a one standard deviation inflationary surprise, indicating a negative reaction to unexpected inflation.
Additionally, research by S&P Global suggests that there are notable periods where returns on crypto and inflation indices exhibit opposite signs, meaning an increase in inflation expectations does not consistently lead to higher crypto returns.
Moreover, data from Skrill indicates a negative correlation between the Consumer Price Index (CPI) and Bitcoin’s price, with Bitcoin’s value often declining when consumer prices rise.
Fidelity Investments Canada also notes that over the past year, Bitcoin hasn’t consistently acted as an inflation hedge, as its returns have become more correlated with broad stock market indexes.
These findings suggest that while Bitcoin’s fixed supply theoretically positions it as an inflation-resistant asset, its actual performance in relation to inflation is inconsistent. Factors such as market sentiment, regulatory developments, and macroeconomic trends significantly influence its price movements. Therefore, investors should approach Bitcoin as a hedge against inflation with caution, considering its volatility and the complex dynamics at play.
