Bitcoin trumps gold for investors as inflation fears mount

For those who can afford it, gold has traditionally been the best protection against inflation. The scarcity of the precious metal means that it will hold its value even when hard currencies lose.

“We believe the perception of Bitcoin as better inflation protection than gold is the main driver of the current rebound, which has sparked a shift from gold ETFs to Bitcoin funds since September,” JPMorgan analysts said in a note last week when Bitcoin hit a new record at nearly $ 67,000. The US investment bank expects the ongoing inflation to support the Bitcoin price at least until the new year.

“Government-sponsored fiat money is purposely designed to depreciate over time to encourage consumption,” said Mati Greenspan, founder of Quantum Economics and a longtime proponent of cryptocurrencies. “Bitcoin, on the other hand, was created as a deflationary asset that is supposed to increase in value over time.”

Bitcoin was created in the furnace of the financial crisis. The person or individuals who designed the original code – pseudonymous creator Satoshi Nakamoto has still not been exposed – limited the lifelong bitcoin supply to 21 million. This built-in limit was a iteration of quantitative easing: in 2008, when Bitcoin was created, central banks were printing hundreds of billions to prop up the financial system, while devaluing currencies around the world.

Bitcoin’s 21 million limit should theoretically help hold its value. That makes it a potential inflation hedge, just like gold.


Hedge fund billionaire Paul Tudor Jones said this month that Bitcoin was his preferred means of protecting against inflation and told CNBC that he was “winning the race against gold.” Carl Icahn, another multi-billion dollar investor, told the same broadcaster that Bitcoin could be a good bet if inflation was “rampant”.

However, not all are convinced.

“Cryptocurrencies have come to the fore over a decade of extremely accommodative money supplies – including waves of massive central bank money creation – and a mild inflationary backdrop,” said Jason Hollands, Managing Director of Best Invest. “Bitcoin must therefore still be tested in a time of high and persistent inflation and higher returns.”

Inflation leads to higher interest rates. This in turn is intended to create more attractive investment opportunities. At least part of the price of Bitcoin is backed up by the fact that many owners – or HODLers as they call themselves – don’t sell. If yields start rising elsewhere, some may be tempted to drop bitcoin and park their capital elsewhere.

Then there is the volatility of Bitcoin.

“I wouldn’t say Bitcoin is a good investment to protect against inflation because it is far too volatile,” says Hargreaves Lansdown’s Susannah Streeter. “When it rises sharply it is naturally attractive and can lure speculators into a false sense of security, but as we have seen it tends to fall dramatically.”

Bitcoin rose 60% in just four months earlier this year before immediately halving. It had boomed again in the past few weeks. Sure, it’s not for the faint of heart.

“I think there are much more proven ways to hedge against inflation, such as investing in baskets of commodities, equity sectors like finance and commodities, and infrastructure projects that have inflation adjustments built into the contracts,” said said.

Streeter says, “If investors want to hold crypto as a defensive strategy, it should only be on the edge of their portfolios, with money they can afford to lose.”

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