For years, inflation was mainly a concern for emerging markets, where volatile currencies and economic instability have increased prices a persistent challenge. However, in the wake of the COVVI-19 pandemic, inflation has become a global problem. The formerly stable savings with historically low inflation suddenly faced arrow costs, encouraging investors to rethink how to preserve their wealth.
While gold and real estate has long been praised as safe workers, Bitcoin supporters argue that its fixed diet and its decentralized nature make it the ultimate shield against inflation. But do it theory hold on?
The answer may largely depend on where you live.
Bitcoin defenders emphasize its strict limit of supply of
21 million pieces as a key advantage in the fight against inflationary monetary policies. Unlike fiduciary currencies, which central banks can print in unlimited quantities, Bitcoin diet is predetermined by an algorithm, preventing any form of artificial expansion. This rarity, according to them, makes bitcoin similar to “digital gold” and a reserve of value more reliable than the money issued by the traditional government.
Several companies and even sovereign nations have adopted the idea, The addition of bitcoin to their treasury bills to cover themselves against the risk and inflation of the fiduciary currency. The most notable example is El Salvador, who made the headlines in 2021 by becoming the first country to adopt Bitcoin as a tender. The government has accumulated Bitcoin since regularly, making it a key element in its economic strategy. Companies love Strategy In the United States and Metaplanet in Japan have followed suit, and now the United States is establishing its own Strategic bitcoin reserve.
A Bitcoin investment strategy has borne fruit so far
So far, the Bitcoin and Government Bitcoin investment strategy has borne fruit while the BTC has surpassed the S&P 500 and Gold Futures since the early 2020s before inflation ended in the United States.
More recently, however, that high performance has shown signs of moderation. Bitcoin remains a solid artist in the past 12 months, and although BTC gains become consumer inflation, economists say that past performance is not a guarantee of future results. Indeed, some studies suggest that a correlation between the yields of cryptocurrencies and changes in the expectations of inflation is far from coherent over time.
Returns in the past 12 months. Source: TRUS.
The role of Bitcoin as an inflation hedge remains uncertain
Unlike traditional inflation hedges such as gold, Bitcoin is still a relatively new asset. Its role as a cover remains uncertain, especially since generalized adoption has only gained ground in recent years.
Despite high inflation in recent years, the price of Bitcoin has fluctuated wildly, often in correlation with risk assets such as technological stocks than with traditional hedges of gold.
A recent study
published in the Journal of Economics and Business have found that Bitcoin’s ability to cover inflation has weakened over time, in particular as institutional adoption increased. In 2022, when American inflation reached a 40 -year summit, Bitcoin lost more than 60% of its value, while gold, traditional inflation coverage, remained relatively stable.
For this reason, some analysts claim that the price of bitcoin may be more motivated by the conditions of feeling and liquidity of investors than by macroeconomic fundamentals as inflation. When risk appetite is solid, Bitcoin gathers. But when the markets are afraid, Bitcoin often blocks alongside actions.
In a Journal of Economics and Business Study, the authors Harold Rodriguez and Jefferson Colombo said,
“Based on the monthly data between August 2010 and January 2023, the results indicate that Bitcoin yields increase considerably after a positive inflationary shock, corroborating empirical evidence that bitcoin can act as inflation coverage.”
However, they noted that the Bitcoin inflationary goods were stronger at first when the institutional adoption of the BTC was not as widespread. The two researchers have agreed that “(…) the property property of Bitcoin inflation is specific to the context and probably decreases because it reaches a wider adoption and is more integrated into the traditional financial markets”.
American inflation index since 2020. Source. Rugging
“So far, he has acted as an inflation hedge, but this is not a black and white case. It is more a cyclical (phenomenon), “said Robert Walden, head of commerce in Abra, at Cointelegraph.
Walden said,
“For Bitcoin to be a real coverage of inflation, it would be regularly necessary to exceed inflation year after year with its yields. However, due to its parabolic nature, its performance tends to be very asymmetrical over time. »»
The Bitcoin movement at the moment, said Walden, more concerns market positioning than coverage of inflation – these are capital flows and interest rate. “”
Argentina and Turkey are looking for a Crypto financial refuge
In economies with stretch inflation and strict capital checks, Bitcoin turned out to be a precious tool to preserve wealth. Argentina and Turkey, two countries with persistent inflation in recent decades, illustrate this dynamic well.
Argentina has long struggled with recurring financial crises and arrow inflation. Although inflation has shown signs of improvement very recently, the inhabitants have historically turned to cryptocurrency as a means of bypassing financial restrictions and protecting their wealth against the amortization of money.
A recent coinbase investigation have found that 87% of Argentines believe that cryptographic and blockchain technology can improve their financial independence, while nearly three in four respondents consider crypto as a solution to challenges such as inflation and high transaction costs.
Related: Argentina exceeds Brazil in crypto inputs – Analysis chain
With a population of 45 million inhabitants, Argentina has become a home for the adoption of cryptography, Coinbase reporting that up to five million Argentinians use digital assets daily.
“Economic freedom is a cornerstone of prosperity, and we are proud to provide secure, transparent and reliable crypto services to Argentina,” said Fabio Plein, director of Coinbase Americas.
“For many Argentines, the crypto is not only an investment, it is a necessity to regain control of their financial future.”
“People in Argentina do not trust Peso. They are still looking for means to store value outside the local currency, “said Bitso’s main director of Bitso Crypto-Monita.
“Bitcoin and Stablecoins allow them to bypass capital controls and protect their savings against devaluation.”
Argentina inflation index. Source. TRUS.
Beyond individual investors, companies in Argentina also use Bitcoin and Stablecoins to protect income and make international transactions. Some workers even choose to receive part of their cryptocurrency wages to protect their inflation income.
According to the economist and Crypto Natalia Mcyl analyst,
“Currency restrictions and capital controls imposed in recent years have made access to US dollars increasingly difficult in the midst of high inflation and a crisis of confidence in the Argentinian Peso. In this environment, cryptocurrencies have become a viable alternative to preserve the value of money, allowing individuals and businesses to bypass the limits of the traditional financial system. »»
While Bitcoin’s efficiency as an inflation coverage is still to be discussed, stablecoins have become a more practical solution in high inflation economies, in particular those fixed to the US dollar.
Compared to its economic size, Turkey has become a hot spot for stablecoin transactions. During the year preceding March 2024, purchases alone represented 4.3% of GDP. This digital currency boom, fueled by years of two -digit inflation, 85% in 2022 – and more than 80% diving in the LIRA against the dollar in the past five years, has grown during the pandemic.
The adoption of Turkey’s bitcoin proves that citizens stimulate adoption, not governments
Although Turkey allows its citizens to buy, hold and exchange crypto, the use of digital currencies for payments
has been prohibited since 2021 When the Central Bank of the Republic of Türkiye has prohibited “any direct or indirect use of cryptographic assets in payment services and electronic issuance.” Nevertheless,
The adoption of crypto in Türkiye is still obviouswith an increasing number of
Turkish banks offer cryptography services And stores and automatic counters offering crypto exchange options.
High inflation rates have supported the erosion of the value of the Turkish LIRA, which lost almost 60% of its purchasing power, while inflation increased to 85.5% between 2021 and 2023.
While some maintain that the rarity of Bitcoin increases well for a long -term appreciation, potentially exceeding consumers’ inflation, its high volatility and its recurring correlation with technology indices and associated with risk like the NASDAQ suggest that its performance as a pure inflation cover remain mixed.
However, in inflationary countries like Argentina and Turkey, where local currencies have collapsed in value, “digital gold” has undeniably served as a crucial exhaust of local currencies, preserving purchasing power in a traditional Fiat manner.
Although Bitcoin is always an emerging active and its effectiveness as a coverage requires a more in -depth study, one thing remains clear – so far, it has considerably surpassed consumers’ inflation. For Bitcoin lovers, it is a sufficient reason to celebrate.
This article is for general information purposes and is not intended to be and must not be considered as legal or investment advice. The points of view, the thoughts and opinions expressed here are the only of the author and do not reflect or do not necessarily represent the opinions and opinions of Cointellegraph.
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