Bitcoin Magazine: Has Bitcoin’s Inflation Hedge Narrative Failed?
Cryptocurrencies soared higher in early 2020 as stimulus checks started to hit bank accounts. One narrative was that more spending could lead to higher inflation. And that bitcoin and other cryptocurrencies could be a hedge against that inflation.
Fast forward two years and that inflation has certainly materialized! However, from last year’s peak, bitcoin is down 70 percent. Other cryptos have fared even worse. That suggests the narrative has failed.
However, some facts are in order. First, during the 2020 market selloff, bitcoin hit a low in the $3,000 range. Today, closer to $19,000, it’s still up six-fold from those lows. That’s a return well in excess of the inflation of the past few years.
In the meantime, credit markets are showing some recent strain. That suggests that even with high inflation, central bankers may need to pivot away from hiking interest rates soon.
While that could relieve some of the downside in financial markets, it could also lead to another move higher for cryptos. However, if that happens and inflation remains high, it could stay higher than desired for years to come.
So in the short term, those holding cryptos for an inflation hedge may be disappointed. But the medium and long term suggests that this new asset class could still serve as a reasonable inflation hedge. And that those who expect it to last higher for longer may want to buy into that hedge now.
