Bitcoin trumps gold for investors as inflation fears rise

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For those who can afford it, gold has always been the best defense against inflation. The scarcity of the precious metal means that it retains its value even if hard currencies lose.

“We believe that the perception of bitcoin as a better hedge against inflation than gold is the main reason for the current recovery, triggering a slide from gold ETFs to bitcoin funds since September,” analysts said. from JPMorgan in a note last week as bitcoin hit a new high at nearly $ 67,000. The U.S. investment bank believes ongoing inflation will support the price of bitcoin at least until the new year.

“Government-backed fiat currency is intentionally designed to lose value over time in order to promote consumerism,” says Mati Greenspan, founder of Quantum Economics and longtime cryptocurrency advocate. “Bitcoin, on the other hand, was created as a deflationary asset, which is intended to rise in value over time.”

Bitcoin was created in the heat of the financial crisis. The person or people who devised the original code – pseudonymous creator Satoshi Nakamoto still remains unmasked – limited the lifetime bitcoin supply to 21 million. This built-in limit was a resumption of quantitative easing: In 2008, when bitcoin was created, central banks were printing hundreds of billions to support the financial system, while devaluing currencies around the world.

The limit of 21 million Bitcoin should in theory help it to hold its value. This makes it a potential hedge against inflation just like gold.

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Hedge fund billionaire Paul Tudor Jones said this month that bitcoin was his preferred way to hedge against inflation, telling CNBC he was “winning the race against gold.” Carl Icahn, another billionaire investor, told the same TV station that bitcoin could be a good bet if inflation was “soaring.”

However, not everyone is convinced.

“Cryptocurrencies have become staple in a decade of ultra-accommodative monetary policy – including massive waves of money printing by central banks – and a backdrop of benign inflation,” said Jason Hollands, director general of Best Invest. “Bitcoin has therefore not yet been tested during a period of high and sustained inflation, and higher yields.”

Inflation leads to higher interest rates. This, in turn, should create more attractive investment opportunities. At least part of the price of bitcoin is supported by the fact that many holders – or HODLers as they call themselves – don’t sell. If yields start to rise elsewhere, some might be tempted to ditch bitcoin and park their capital elsewhere.

Then there is the volatility of bitcoin.

“I wouldn’t say Bitcoin is a good investment as an inflation hedge because it’s way too volatile,” says Susannah Streeter of Hargreaves Lansdown. “When it rises sharply it is obviously attractive and may lure speculators into a false sense of security, but as we have seen it tends to fall considerably.”

Bitcoin rose 60% in just four months at the start of this year before rapidly halving. In the past few weeks, it had exploded again. Clearly, this is not for the faint of heart.

“In my opinion, there are much more proven ways to hedge against inflation, such as investing in baskets of commodities, equity sectors like finance and commodities, as well as infrastructure projects where inflation adjustments are built into contracts, ”Hollands said. said.

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

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