Is Bitcoin an Inflation Hedge or a Speculative Asset?


The purpose of Bitcoin is extremely controversial as market trends make valid cases for different uses.

Crypto experts have made claims that Bitcoin is both a speculative asset and a hedge against inflation. This past week showed that Bitcoin was more of a speculative asset rather than an inflation hedge. For example, on Thursday Federal Reserve Chairman Jerome Powell sent equity and crypto markets tumbling after he stated that the central bank plans to stick to its current policy despite rising interest rates.

Furthermore, Bitcoin's volatility makes it hard to trust if it truly is a speculative asset alone. However, rising interest rates and inflation are not the same things. Rising rates are viewed as inflation expectations that can actually materialize into inflation. That being said, there currently isn't inflation in the US so ruling Bitcoin out as a hedge isn't 100 percent confirmed as of right now.

The market is acting very strange right now as well. To make any assumptions in the current conditions would be unwise. For example, oil and the dollar have been rising when the two typically move opposite of each other. Gold, the most common historical inflation hedge, has fallen in recent sessions.

“Bitcoin’s nearly complete lack of meaningful correlations with other assets presents it as a diversifier, but given its high volatility, we think adding it to a portfolio is more about returns than diversification, particularly considering the headline-grabbing nature of its moves of late,” said RBC Capital Markets Christopher Louney in a note where he juxtaposed gold and Bitcoin.

Corporate interest in Bitcoin has also been on the decline. The Amplify Transformational Data Sharing ETF (ticker: BLOK), created by Toroso Investments to track corporate interest in Bitcoin, has fallen 13% since Monday. Michael Venuto, the chief investment officer of Toroso, believes that amid market turmoil and inflation expectations, investors have turned away from Bitcoin.

“I think it’s the exact same thing that’s happened to gold,” Louney said. “Inflation scared people and money went to cash. It didn’t go into Bitcoin. It didn’t go into gold” because investors wanted liquidity.

“I think just like gold, Bitcoin is not a direct one-to-one inflation hedge,” he said. “Most of the time when there’s inflation, gold underperforms, until we all realize it’s inflation, and then it catches up.”

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Economics, Finance and Investing