As Bitcoin prices continue to surge past all-time highs, the community is divided on whether or not Bitcoin is a hedge against inflation.
Decentralized systems are supposed to be resistant to control by outside parties. But there are times when decentralization comes with a price. The Bitcoin network is an example of a decentralized system that sometimes comes with a cost: it’s not always resistant to outside control, and in fact, has been under government scrutiny.
Amid a rising consumer price index (CPI) in the US, the cryptocurrency community is divided on whether bitcoin (BTC) is truly an inflation hedge.
The consumer price index (CPI), which measures the average change in the prices consumers pay for a basket of goods and services, recorded its biggest monthly increase in 13 years in June, Business Insider reported Tuesday. The rise in inflation began in March, when the CPI rose 2.6%, followed by a 4.2% increase in April and finally 5.4% in June.
But despite the recent rise in inflation, as measured by the consumer price index, bitcoin has failed to become an inflation hedge, according to some analysts, with the price nearly halved from the $64,000 mark in mid-April.
Interestingly, while the CPI inflation index rose from +1.4% y/y in January to 5.4% in June, #Bitcoin was halved
[Past performance does not guarantee future performance] pic.twitter.com/QIXeb2m5Vv
– Liz Ann Saunders (@LizAnnSonders) July 13, 2021
Bitcoin no longer acts as an inflation hedge and will continue to weigh heavily on expectations of rising yields, Ed Moya, senior equity analyst at currency firm Oanda, said Tuesday. However, this inflation is considered temporary, which could be why the June CPI report was not a sufficient catalyst to reverse bitcoin’s sideways movement, Moya added.
The cryptocurrency community then reacted to these CPI comments against bitcoin, with many proponents of the sector pointing out that their early investments in bitcoin and profits had already secured the future. Some bitcoin enthusiasts have noted that bitcoin has experienced historic growth and significant long-term gains.
InFlaTioN hEdGe #bitcoin pic.twitter.com/OjhUY5OLJV
– Hajek.HODL₿⚡ (@hajek_miloslav) July 13, 2021
Related: Bitcoin boom: US inflation hits 13-year high and wages fall to lowest in 21st century
According to some crypto-experts, bitcoin is not really the best hedge against inflation. Mati Greenspan, founder of money management firm Quantum Economics, told Cointelegraph that there is no correlation between the price of bitcoin and inflation or deflation data:
There is no doubt that bitcoin has played an important role for a long time. But most of the gains were made in a global deflationary environment, when all risky assets rose. With inflation really picking up for the first time since bitcoin’s inception, bitcoin’s growth is lagging dramatically.
The latest CPI-related argument adds a new twist to the long-running debate over bitcoin as a hedging instrument. A number of financial analysts, including Nassim Taleb, believe that inflation has nothing to do with the price of bitcoin. However, some global investors, such as Paul Tudor Jones, have turned to bitcoin to protect their investments from inflation.
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