Bloomberg recently discovered that investors are hedging against rising inflation fears by using Bitcoin. In a tweet, the company even called it “the best hedge against inflation” depending on how you look at it.
Bitcoin beats inflation
After calculating the numbers, John Authers of Bloomberg Opinion found that Bitcoin had hit 99.996% deflation in the past 10 years. What used to cost a Bitcoin in 2011 only costs 0.004% of a Bitcoin today. Meanwhile, the CPI rose 28% in dollars during this period.
Just days ago, Bitcoin hit a new all-time high after the release of U.S. inflation figures for October. Since last year, the CPI has grown 6.2% nationwide – the fastest increase since 1990. Additionally, when using the 1980s measure for the CPI, inflation increased by almost 15%.
Bloomberg economists estimate that about half of Bitcoin’s recent price spike is due to inflation fears. The other half is due to momentum trading:
“Our model shows that for Bitcoin, the importance of inflation and hedging against uncertainty become more important drivers over time, accounting for 50% of price movements in the last cycle compared to 20% in 2017. “said Björn van Roye and Tom Orlik.
Why is Bitcoin a hedge against inflation?
Public recognition of Bitcoin as an inflation hedge is growing. Billionaire hedge fund manager Paul Tudor Jones last month called the asset a better hedge than gold. JP Morgan considers Bitcoin to be valuable for the same reason.
The association is not surprising: while America’s M2 money supply has grown by almost 40% in the past two years alone, Bitcoin’s monetary policy is fixed and declining. There will never be more than 21 million Bitcoins, which gives the asset a trustworthy scarcity.
However, Bloomberg acknowledges that Bitcoin has yet to gain enough confidence to be considered a guaranteed hedge against inflation. Wilfred Daye, director of Securitize Capital, still claims gold is a better alternative, even though Bitcoin is “a sexy new concept”.
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