Is Bitcoin Still a Good Hedge Against Inflation?
When high inflation began to rear its ugly head in late 2021, many investors thought Bitcoin would serve as a strong hedge against inflation, similar to gold.
Unfortunately, 2022 has all but dashed this hope, with Bitcoin plummeting in direct correlation with the equities market.
Bitcoin (BTC) currently trades at less than half its all-time high from November 2021. Despite the massive drop, Bitcoin is still up nearly 300% over the last three years, compared to 36% for the S&P 500 (SPX).
Many proponents of Bitcoin believe that the correction in speculative tech stocks should benefit Bitcoin. As investors flee the overvalued tech sector, they need a place to park their money. While many investors have chosen the safe haven provided by gold and silver, others have decided to go with Bitcoin, which seems to have levelled off as stocks keep falling.
One other key benefit of Bitcoin is its mobility. Unlike fiat currencies like the U.S. Dollar, Bitcoin is not subject to exchange rates. Bitcoin owners can cash in their BTC for whatever currency they choose. There’s also no need to wait for a check to clear a wire transfer to arrive. Instead, Bitcoin transactions are instantaneous, with funds immediately available for use.
It appears that most of the short-term traders have washed out of Bitcoin, given the price support of just around $30,000. Long-term investors seem to be holding pat in anticipation of the cryptocurrency regaining lost ground.
Many have compared Bitcoin to “digital gold” in anticipation of investors hoarding it as a hedge against falling equity prices. However, this being the first significant crypto market correction since Bitcoin first approached the $20,000 level in late 2017, nobody can be sure how Bitcoin will fare during an extended downturn. Will BTC follow gold’s lead? Or will investors view Bitcoin as another speculative investment and flee crypto for the safety of gold and silver? Only time will tell.
Bitcoin is currently changing hands at $31,733.49, up +0.01% on the day. YTD BTC is down -33.58%.
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Disclaimer: Wealthy VC does not hold a position in any of the stocks, ETFs, or cryptocurrencies mentioned in this article.
