Bloomberg recently discovered that Bitcoin is being used by investors to protect themselves against rising inflation fears. The company called it the “best inflation hedge around”, depending on how you look at it.
Bitcoin Beats Inflation
John Authers, Bloomberg Opinion’s economist, found that Bitcoin has experienced 99.996% inflation over the past ten years. Today, a Bitcoin costs only 0.004% of what it cost in 2011. In the meantime, the CPI rose 28% in dollars.
Bitcoin reached an all-time high just days after the US inflation numbers were released. The country’s CPI has increased by 6.2% since last year. This is the fastest increase since 1990. Inflation has risen by close to 15% when using the 1980’s CPI measure.
According to Bloomberg economists, roughly half of Bitcoin’s recent price rise was caused by inflation fears. The momentum trading is responsible for the other half.
“Our model shows that Bitcoin’s importance of inflation, hedging against uncertainties, and driving price movements over time become more important drivers,” said Tom Orlik and Bjorn van Roye.
What Is Bitcoin an Inflation Hedge?
The public is increasingly recognizing Bitcoin as an inflation hedge. Paul Tudor Jones, a billionaire hedge fund manager, called Bitcoin a better asset than gold last month. JP Morgan sees Bitcoin as equally valuable.
This is not surprising: While the US M2 currency supply has increased by almost 40% over the past two years, Bitcoin’s monetary policies are fixed and declining. The asset will be trusted scarcer if there are less than 21 million Bitcoin.
Bloomberg admits that Bitcoin is still not trusted enough to be considered an inflation hedge. Securitize Capital’s Wilfred Daye still believes gold is a better option, even though Bitcoin “is a new sexy idea”.
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