BTC May Not be the Inflation Hedge You Think It Is

Ask any newbie bettor on BTC why they bought into the nascent asset class and nine out of ten will tell you as a “hedge against inflation” and perhaps even throw in a “guard against currency debasement” argument for good measure.

And while these soundbites are sexy in their simplicity, the reality is that the empirical evidence backing up BTC as an inflation hedge is patchy at best and fabricated at worst.

And with fresh stimulus checks headed into American pocket books, the seductive simplicity of the allure of BTC is understandable.

As U.S. Treasury yields have spiked because of longer term inflation concerns, BTC maximalists are pointing to that, to talk up their favorite cryptocurrency.

And even if we were to forget about what the actual inflation rate is, the bigger question is whether BTC would work as a hedge against it.

First off, there’s the relatively limited history of BTC, which has only been around for over a decade – a period during which inflation has been historically low.

And if BTC is likened to gold then the good news is that gold does act as an inflation hedge, if you think in time frames of beyond a century or more.

But over relatively shorter periods, gold is susceptible to both bouts of euphoria and sharp crashes (sound familiar?). For reference, gold is down almost 10% this year, despite Treasury yields spiking and concerns over inflation.

If nothing else, inflation might see a sharp decline in BTC, if investors move out of riskier assets such as cryptocurrencies. In recent weeks, as U.S. Treasury yields spiked on inflation concerns, BTC saw its worst falls in months.

That doesn’t of course mean that BTC can’t be a hedge against inflation – because an asset sometimes is what you make of it.

A growing chorus of high profile voices from Wall Street and the Silicon Valley are talking up the inflation-proof quality of BTC and celebrities are also getting in on the asset class. And there is a growing list of global macro investors who have a non-zero amount stashed away in BTC as a store of value, led most notably by billionaire hedge fund investor Paul Tudor Jones.

Ultimately, BTC could or could not be a hedge against inflation, but the odds are the answer to that question would depend very much on who you are asking and more importantly, when you are asking that question.