Bitcoin has been called the worst inflation hedge. Is it really?

Amid a spike in the US consumer price index (CPI), the cryptocurrency community is divided over whether Bitcoin is indeed the best hedge against inflation.

The consumer price index, which measures the average change in prices that consumers pay for a basket of certain goods and services, in June showed the largest monthly increase in the last 13 years. The spike in inflation began in March when the rate rose 2.6 percent, followed by an increase of 4.2 percent in April and another 5.4 percent in June .

In other words, prices in America and the world are rising, so analysts have started talking about Bitcoin’s ability to preserve the value of the initial investment. As a result, it was not possible to come to a consensus.

By tradition, let’s start with an explanation. Bitcoin and other cryptocurrencies are often positioned as a means of protecting against inflation and preserving the value of investments in general. For example, during the week, BTC billionaire Tyler Winklevoss also noted that he considers the first cryptocurrency to be the best protection against the depreciation of conventional currencies in the world.

First of all, this is due to the fact that coins are able to significantly increase in value. This becomes evident when you look at the scale of growth of cryptocurrencies from their lowest prices. Here is the data for ETH, which has grown by at least 444 thousand percent in almost six years. Moreover, this amount is indicated taking into account the current sagging value of the asset, and not its peak $ 4,356 recorded on May 12.

Ethereum growth rate

The scale of growth of the ETH rate for all time

Binance’s native token, BNB, has generated 783,000 percent growth in nearly four years.

Kusama jumped 20 thousand percent – but in a year and a half.

Despite the incredible results of many cryptocurrencies, some people still criticize them. Here is the point of view of non-coin lovers.

Will Bitcoin save you from losing money?

There is a very interesting trend – with the rise in inflation, the price of Bitcoin has decreased by almost 50 percent in a very short time. And if there is a connection between CPI and the price of BTC, then cryptocurrency can hardly be called a good defense against price increases. This is the opinion of Ed Moya, senior stock analyst at Oanda.

Here is a comment from an expert in which he shares his attitude to what is happening. The quote is from Cointelegraph.

Bitcoin no longer acts as a hedge against inflation and will continue to attract attention only for its high projected yields.

This means that now the analyst does not consider cryptocurrency to be a good means of preserving capital. First of all, this is due to the fact that the coin rate has not been growing much lately and is moving in a rather narrow price channel. At the same time, we note that representatives of the Glassnode company consider the current situation to be the so-called calm before the storm.

Bitcoin cryptocurrency trading chart

Falling BTC amid rising CPI

In other words, most people still buy BTC in the hope that in the future someone else will buy their cryptocurrency at a higher price. On Twitter, there were opponents of this point of view among active cryptocurrency enthusiasts. Many of them said that BTC had completely protected their funds from inflation for several years of its growth . That is, the banal increase in the value of the first cryptocurrency was enough to cover possible losses due to the depreciation of the dollar and other currencies.

There really is some logic in this approach. Yet, exactly a year ago, the first cryptocurrency was valued at $ 9,247. Even taking into account the current sagging exchange rate of 32,191 dollars, we are talking about 3.48 times growth in a calendar year. Accordingly, an early investment at the right time could not only protect against inflation, but also allow you to make good money.

bitcoin chart rate

Bitcoin price chart for the year

At the same time, many altcoins gave out more percent growth. For example, Ethereum a year ago cost $ 240, which is 8 times lower than today’s $ 1,919.

At the same time, the fact remains – how the investment of 2021 Bitcoin lags behind the profitability of the stock market. For those who invested in crypto only in March or April, things are even worse: without proper risk management, their capital has almost halved by now.

Bitcoin blockchain chart

Bitcoin price on July 9 in past years

We believe that criticism of Bitcoin and cryptocurrencies in general in such a context is not justified. In fact, those people who bought them at or near the peak have lost money on coins this year. However, falls happen for all categories of assets – it’s just that in the case of crypto, they are sharper and more significant. Therefore, it is not worth seeing the cause of all evil in blockchain-based coins, and they can really protect against inflation. It’s just that investors – and especially beginners – need to always consider sudden and poorly predictable scenarios for such volatile assets.

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