The role of Bitcoin as an inflation hedge is well-known, with one analyst declaring, “You don’t need Bitcoin until you do.”
The issue of rising costs is making headlines all across the world. Inflation in the United States just surpassed a four-decade high. In Europe, the situation is dire, with prices rising by more than 5% across the Eurozone and 4.9 percent in the United Kingdom.
Bitcoin (BTC) is hovering at $39,000, despite rising prices. It raises a number of problems, including whether Bitcoin is an effective hedge against rising prices, what function Bitcoin can play in a high-inflation climate, and whether Bitcoiners were aware that inflation was on the way.
Experts in the fields of Bitcoin, banking, and even European politics reacted to these inquiries, sharing their perspectives with the media on Europe’s worrisome price increases.
According to data researchers Kaiko’s monthly report, the Bitcoin price has risen faster than inflation, meaning that Bitcoiners may have anticipated a price spike and piled sats to protect against it.
Danny Scott, the CEO of CoinCorner, the top Bitcoin exchange in the United Kingdom, agrees. “The inflation levels we are seeing around the world do not surprise me,” he says.
“This has been in the works for over a decade, and COVID has just accelerated it.” True inflation is being swept under the rug in order to maintain a favorable spin on inflation being ‘under control.'”
Another Bitcoiner, this time a member of parliament, is “unsurprised” by the current rate of inflation. Christophe De Beukelaer, a significant opinion leader in Belgium, was the first European politician to receive payment in Bitcoin.
“When we pump trillions, as we have done,” he added in an interview, “at some time you have to pay the price.” But it has more than a financial impact: “People don’t see it and don’t recognize it, but inflation has a significant impact on their well-being.”
“Expansive monetary policies are contributing to higher levels of inflation,” said Nicolas Bertrand, a Global Blockchain Business Council ambassador and financial executive from Borsa Italia and the London Stock Exchange. “I would not be surprised to see this situation lasting for longer than people expect.”
De Beukelaer, on the other hand, believes that “at some point, we will have a major monetary catastrophe.”
What does this indicate for short-term inflation levels now that the Ukraine situation has exacerbated the problem? “Surging commodity prices are likely to keep inflationary pressures robust and limit growth due to Europe’s significant economic ties to Russia,” said Ambre Soubiran, CEO of Kaiko.
She went on to say that the recent price action, which has seen Bitcoin fall from highs of $69,000, is likely due to “markets pricing in a rate hike from the European Central Bank this year.”
Should you HODL Bitcoin because inflation is here to stay?
In the United States, the use of bitcoin as an inflation hedge is a popular narrative. The jury is still out in Europe, or, as De Beukelaer puts it, “it’s hard to declare with certainty.” “It can be expected to be a strong bulwark against inflation” since “its growth is limited and transparent.”
“Contrary to fiat currencies, other readily available investment assets, and even gold, Bitcoin’s value cannot be negatively impacted by the issuance of new coins,” says Bertrand, who has a wealth of experience in traditional financial markets. This provides a strong foundation, making Bitcoin an appealing asset in an era of rising inflation.”
There are, however, a few caveats. “There isn’t enough data to indicate that Bitcoin is statistically a good inflation hedge,” according to the report. Furthermore, Bertrand stated that “in terms of acceptance, we are still not there to consider Bitcoin a good hedging.”
“Bitcoin has moved in lockstep with risk assets over the past few months and is unlikely to decouple in the current uncertain monetary climate,” Soubiran says.
Bendik Norheim Schei, head of research at Arcane Crypto, and Scott, on the other hand, are laser-focused on Bitcoin’s position in an inflationary climate. “Bitcoin is a terrific alternative for individuals who want to bet on inflation going crazy,” Schei remarked. Or, to put it another way, prepare for the worst-case scenario. If global economies reach high inflation levels, a scarce asset with a fixed supply is a strong option.”
“Bitcoin solves the problem of detaching money from the state, but it also comes with many other benefits, such as a decentralized and worldwide hedge against inflation,” Scott says.
People are looking for alternatives, and Bitcoin is one of them, because several significant growing countries, such as Argentina, have “passed 50 percent inflation.” “You don’t need Bitcoin unless you do,” he says as a cautionary remark.
Bitcoin and the Future of Inflation
It’s debatable whether Bitcoin functions as a store of value or an inflationary hedge, but De Beukelaer believes the key thing is that “we have a choice.” If a citizen loses faith in the euro, dollar, or other fiat currency, he can shift to Bitcoin/crypto. And that’s a good thing. Power, when left to its own devices, is prone to making rash decisions. It’s good that a monetary counter-force appears to balance it out and help it get rid of its excesses.”
Bertrand also believes that maintaining a sense of equilibrium is essential. “As always, one must carefully consider their consolidated asset allocation while keeping the principle of balance in mind.”
However, according to De Beuekalaer, there is an added element of pressure because “purchasing power has been lost by half over 10 years.” In other words, if there was ever a moment to learn about Bitcoin, now is it.
Scott is direct and to-the-point. “Education is still really important, not just in terms of Bitcoin, but in terms of money and the economy in general.”
“This is a long-term gamble on an asset that will survive in a world where massive fiat currencies become worthless due to unregulated money production and excessive inflation,” says Schei of the seminal cryptocurrency.
With a growing number of thought leaders and wealthy investors endorsing Bitcoin or stating that fiat currency is on its way out, it may be worthwhile to hold on to some.
Disclaimer: These are the writer’s opinions and should not be considered investment advice. Readers should do their own research.