Latest news about Bitcoin and all cryptocurrencies. Your daily crypto news habit.
We assess Bitcoin's proposition as an inflation hedge given the 30-year high recorded in consumer prices in the U.S.
Following the announcement of U.S. inflation reaching 6.2%, stock futures dropped while bond yields increased sharply. Gold, long believed to be an inflation hedge, increased and Bitcoin appeared to follow suit... briefly.
The break-down
Bitcoin's price climbed nearly 4% in the 2-hour period following the inflation report, but then dropped 8% just a few hours later.
- Bitcoin proponents argue its limited supply make it an ideal hedge for inflation
- The market's stance on this potential is still inconclusive, particularly since higher inflation may move ahead an interest rate hike
- Crypto markets have benefitted from quantitative easing and near-zero interest rates, potentially making an increase in rates detrimental to the current bull market
Looking further into capital markets we observe Bitcoin has been increasingly correlated with inflation expectations.
As of November 11 using IntoTheBlock's Capital Markets Insights
ProShares inflation expectations ETF (RINF) tracks the long-term break-even inflation, a widely followed measure of inflation expectations.
- BTC's correlation with RINF hit an all-time high of 0.95 in late October, pointing to both Bitcoin and inflation expectations moving in tandem
- Inflation expectations directly influence future inflation as consumers and producers try to anticipate future values
- Having a high correlation between BTC and inflation expectations does not imply causation, but does show a statistical significance in the variations of the two
The bottom line
Bitcoin's price action following the record inflation numbers left traders scrambling to decipher if it can sustain its value during times of high inflation. Buoyed by its limited supply, Bitcoin acceptance as an inflation hedge appears to be growing as evidenced by the high correlation with inflation expectations.
Disclaimer
The views and opinions expressed in this article are solely those of the authors and do not reflect the views of Bitcoin Insider. Every investment and trading move involves risk - this is especially true for cryptocurrencies given their volatility. We strongly advise our readers to conduct their own research when making a decision.