Rethinking Bitcoin’s power as an inflation hedge – TechCrunch


From turkeys to petrol, clothes to discount stores, almost every path of human activity is hit by the ghost of inflation. Around the world, rising inflation is disrupting purchase plans and spending.

Faced with this inflationary hell, consumers and institutions holding the devaluation of fiat money have sought alternatives for hedging.Bitcoin and many other cryptocurrencies are the weapons of choice today, and the US Securities and Exchange Commission has cryptocurrencies. Investable asset class..

Bitcoin witnessed Strong year-to-date returns, Surpassing traditional hedges Rally More than 130% compared to just 4% of gold.In addition, it increased Institutional recruitment, Based on a persistent desire for digital assets Weekly inflow Increased media exposure has strengthened the Bitcoin case among tired investors.

If these are moves made by big bucks, they must be wise moves. However, while the outlook for hedging against Bitcoin may seem to attract individual investors, there remains a question mark as to its feasibility in mitigating individual financial risk.

Miscalculated expectations

The ongoing debate about Bitcoin as an inflation hedge should begin with the fact that currencies are often susceptible to market jitter and turns: the value of Bitcoin has plummeted. 80% During December 2017 50% Different from March 2020 53% May 2021.

Bitcoin’s ability to improve user returns and reduce volatility in the long run has not yet been proven.Traditional hedges like gold Proven effectiveness By maintaining purchasing power during periods of sustained high inflation — take the United States 1970s As an example — Bitcoin has not been tested yet. This increased risk, in turn, produces returns that are subject to dramatic short-term fluctuations that can affect the currency.

It is premature to determine that Bitcoin is an effective hedge.

Many argue based on the fact that Bitcoin is designed for a limited supply. This probably protects Bitcoin from devaluation compared to traditional fiat currencies. This makes sense in theory, but it has been shown that Bitcoin prices are susceptible to external influences. Bitcoin “whales” are known for their ability to manipulate prices by buying and selling in large quantities. In other words, Bitcoin can be determined not only by the rules of the money supply, but also by speculative forces.

Another important consideration is regulation. Bitcoin and other cryptocurrencies are still at the mercy of laws that vary widely between regulators and jurisdictions. Anti-competition law and short-sighted regulations can significantly impede the adoption of underlying technology and further reduce the price of assets. All this is one thing to say: it’s too early to decide that Bitcoin is an effective hedge.

Catering to the rich

Against the backdrop of this debate, another notable trend is gaining momentum. As Bitcoin grows in popularity, it continues to drive currency adoption and institutionalization among consumers, including some wealthy individuals and businesses.

In a recent survey 72% of UK financial advisers He explained to clients about investing in cryptocurrencies and said that nearly half of their advisors believe that cryptocurrencies can be used as uncorrelated assets to diversify their portfolios.

There was also a lot of Bitcoin support from prolific individuals known to be technologically progressive, namely Wall Street investors in billionaires. Paul Tudor, Twitter CEO Jack Dorsey, Winkle Boss Twins When Mike Novogratz..Even a powerful company like Goldman Sachs When Morgan Stanley It has expressed interest in Bitcoin as a viable asset.

As this momentum continues, Bitcoin’s infamous volatility will gradually disappear as more and more wealthy people and institutions hold their currencies.Ironically, this accumulation of value on the network leads to a concentration of wealth — an antithesis of the purpose for which Bitcoin was created, influenced exclusively by the elite. 1%..

Consistent with the classic school of financial thought, buying and selling institutional investors resembles market manipulation like whales, so this actually puts individual investors at greater risk.

Against the core spirit

It can be argued that the growing popularity of Bitcoin will undoubtedly lead to an increase in the number of people who own it, and that the people with the most money will (as always) own most of it. ..

This striking shift in impact on ultra-high individuals and businesses among Bitcoin and other crypto circles goes against the very spirit it was based on when the Bitcoin White Paper explained. Peer-to-peer electronic cash system..

Between Basic rationale In the case of cryptocurrency, there is no permission, Strong against censorship Controlled by a given institution.

Currently, 1% want larger slices of cryptocurrency pies, so we will raise the price of these assets in the short term in ways traditionally less influential individual investors cannot.

This move will undoubtedly bring some wealth, but it is argued that it could be at the mercy of the market to 1%, inconsistent with Bitcoin’s intended vision.

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