Bitcoin has yet to prove inflation hedging status, but the time may come soon

Over the years, the narrative surrounding Bitcoin (Bitcoin) Has always described digital assets as a tool to hedge currency inflation. This is because inflation data has risen across the board in the past few years, thanks in large part to the government’s printing of a large number of local legal assets in response to the financial damage caused by the COVID-19 pandemic.

In the long run, since the outbreak of the virus last year, President Biden’s stimulus plan has brought the total relief debt of the United States to $5 trillion. Another way to visualize these huge numbers is to consider that during 2020 alone, the Federal Reserve issued more than 40% of all U.S. dollars currently in existence.

And, while one might think that such amazing data may be beneficial to Bitcoin to further consolidate its position as a tangible long-term store of value in the eyes of many people around the world, a recent report released by Crypto Analysis firm Chainalysis seems to indicate BTC may not be an inflation hedge Many people initially touted it as. Regarding this question, Kim Grauer, the research leader of Chainalysis, pointed out:

“At present, we cannot prove that there is a statistically significant correlation between U.S. inflation and Bitcoin prices, but we know that many people invest in Bitcoin to hedge against inflation.”

But this is not the end of the debate.

Not set in stone

Inflation data is still a hot topic. Earlier in June this year, the PCE index, a key indicator of the American public’s spending power, showed that inflation data is currently at the highest level. This fact highlights this point. The level of more than ten years.

Therefore, in order to better understand whether the value of BTC as an inflation hedging tool is fading, Cointelegraph talked with Bobby Zagotta, CEO of the cryptocurrency exchange Bitstamp US. He believes that “Bitcoin and crypto as the entire asset class have surpassed A discussion about whether this is just a hedge against inflation.”

Matt Luczynski, CEO of HooDooi.com, a multi-chain NFT market, told Cointelegraph that when considering the economic structure behind traditional bank settings, there is no doubt that Bitcoin is a good long-term store of value, adding:

“it [Bitcoin] Provide more value, stability and security than any currency/asset supported by the current central government. There is no doubt that early adopters basically control the market in terms of price behavior, but over time, this situation will eventually balance out as the supply continues to become more distributed to more and more people. “

Having said that, he does admit that in order for digital assets to gain more attention as a store of value or hedging tool, the entire crypto market needs to become more mature. “it [Bitcoin] We are on the right track, heading in the right direction. In my opinion, this is a long-term game,” Luczynski finally said.

Take a closer look at the arguments against rush

Iqbal Gandham, vice president of trading and payment at Ledger, told Cointelegraph that, as far as the current situation is concerned, he does not believe that Bitcoin is regarded by ordinary investors as their main bet against local fiat currency dilution.

In other words, this narrative is likely to change drastically, but it will take at least a few years to realize: “For it [BTC] To become a long-term store of value, it needs to be consistent with inflation and reduce price fluctuations. This will only happen as adoption increases and prices find new specifications. “

Anton Bukov, co-founder of 1inch Network, a decentralized transaction aggregator, provided a more comprehensive view of the matter. He told Cointelegraph that cryptocurrency is still a high-risk asset class, and many experts and ordinary investors are still uncertain about the entire industry. s future.

However, as more and more daily users and institutional investors seem to join the competition, Bukov believes that there are enough reasons to believe that Bitcoin will undoubtedly play the role of SOV in the eyes of many people in the future:

“Almost 13 years later, Bitcoin has become an indispensable part of the modern world. I believe that BTC will maintain its “digital gold” status. Currently, there are more than 56 dollar millionaires on the plantation that can use 21 million to mine. BTC, so in my opinion, it is almost impossible to lose its identity as a store of value.”

All about long-term gaming

According to Nicholas Merten, CEO of the financial platform Digifox and creator of the DataDash YouTube channel, one of the many mistakes most people make when criticizing Bitcoin’s store of value narrative is that they expect immediate results related to various macro events the result of.

For example, he emphasized that if the recent halving of BTC (which occurs every four years) is taken into account, most people claim that the price impact of these events is usually “considered” before they occur. “However, as we know, the market has rebounded seismically after each halving time and time again,” he added.

Merten also believes that inflation hedgers must take time to decide which assets they really want to allocate capital to. This decision-making process often leads to changes and delays in asset prices. He added:

“A good example of the traditional market is adjusting the performance of the S&P 500 index through the M3 money supply. You will see that the S&P 500 took 1 year and 5 months to re-examine its previous inflation-adjusted valuation. ; Does this mean that stocks cannot help store value? In my opinion, non-stocks usually exceed the rate of holding dollars in banks.”

Look to the future

Although the current US inflation data may seem quite bleak, it should be emphasized that other small countries such as Zimbabwe and Venezuela have been on the receiving end of currency depreciation figures, which is simply unfathomable to many people.

related: Diminishing returns: Is Bitcoin underperforming compared to altcoins?

For example, in 2019, Venezuela experienced an inflation rate of as high as 10,000,000%, rendering the country’s local currency, the Bolivar, almost useless.Therefore, the reports at the time seemed to indicate Interest in digital assets has grown Accompanied by the surge in inflation figures.

“We know that in other countries such as Venezuela and Nigeria that suffer from more severe currency inflation or devaluation, people use cryptocurrency as a store of value,” Grauer pointed out.

Therefore, although Bitcoin’s fixed supply narrative continues to show that digital currency can indeed be regarded as a primary store of value, such as May’s cross-market price plunge It seems that this narrative is questioned. Therefore, it will be interesting to see if Bitcoin can follow its own path, Independent of other asset risks, Such as stocks.