Bitcoin bulls have long claimed the cryptocurrency is an inflation hedge. But recent price fluctuations have challenged that idea.
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- Bitcoin bulls have long argued that the cryptocurrency is a hedge against inflation, especially because of its steady supply.
- But Bitcoin tanked last week after more than expected inflation data than it should theoretically have gained.
- We spoke to a Bitcoin expert who isn’t concerned about Bitcoin’s recent downward movement – and who said that it is still undervalued as an inflation hedge.
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Fears of rising inflation came to a head on Wednesday when key data was significantly higher than economists expected. Bitcoin, touted as an inflation hedge by some of its biggest supporters – because it has limited supply unlike the dollar – did not rise in response. Instead, it slumped around 7% that day.
Headline inflation data, as measured by the consumer price index, rose 4.2% yoy in April, the fastest rate since 2008, while core inflation rose 0.9%, the largest monthly increase in the core index since 1982. The Dow lost nearly 700 points Wednesday.
Meanwhile, alleged anti-inflation bitcoin fell below $ 50,000 to its lowest level in nearly three weeks.
The day inflation fears reached a boiling point would have been the time for Bitcoin to shine as a hedge against depreciated government-backed money than its supporters claim. With its fixed offer of 21 million Bitcoin, the cryptocurrency is designed to protect against reckless central bank policies and helicopter money distributed by governments during the pandemic.
However, with inflation concerns arose in the weeks leading up to Wednesday’s crescendo, Bitcoin was unable to break new records. It’s slumped 24% in the last month, and Elon Musk’s tweet about its post-inflationary environmental impact didn’t help.
The world’s most popular cryptocurrency may not be the hedge it is claimed to be and its sensitivity to local restrictions on bitcoin mining, right down to the latest tweets from Elon Musk, shows that the coin is truly being used by market participants as a risk asset and vehicle for speculation.
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Still, some bulls firmly believe that Bitcoin will get its day in the sun when inflation rises.
Dan Held, head of growth at Kraken cryptocurrency exchange, doesn’t think bitcoin’s recent price action suggests it isn’t a good inflation hedge and said it had a floor around the current price of $ 45,000 to $ 50,000 has developed.
“I don’t think there was a single catalyst that would have pushed Bitcoin either up or down that was inflation-driven,” he told Insider. “Bitcoin moved up so much earlier this year that it was a type of bitcoin that took its breath away before another big spike.”
Held said that Bitcoin is still undervalued as an inflation hedge, especially considering that with a market cap of $ 1 trillion, it is much smaller than other assets traditionally viewed as an inflation hedge, like gold and real estate.