Bloomberg recently discovered that investors are hedging against rising inflation fears by using Bitcoin. In a tweet, the company even called it “the best inflation hedge around” depending on how one looks 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 cost one Bitcoin in 2011 now costs just 0.004% of a Bitcoin today. Meanwhile, the CPI has risen 28% in dollars during that time.
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 risen by 6.2% across the country – the fastest rise since 1990. What’s more, when using the 1980’s measure for CPI, inflation has increased by closer to 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 moves in the latest cycle relative 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 views Bitcoin as 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 Bitcoin to ever exist, giving the asset trustworthy scarcity.
However, Bloomberg acknowledges that Bitcoin has yet to gain enough confidence to be considered a guaranteed hedge against inflation. Wilfred Daye, head of Securitize Capital, still says gold is a better alternative, even though Bitcoin is “a new sexy concept”.
