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Bitcoin: is it Against Inflation?

We normally think of gold as the best way to protect against inflation. But Bitcoin isn't gold.

Bitcoin: is it Against Inflation? iBase Trading.
iBase Trading Crypto News

We normally think of gold as the best way to protect against inflation. But Bitcoin isn’t gold.

Gold, on the other hand, is viewed as safe. However, BTC is viewed as exceedingly dangerous. The key distinction is that investing in gold is less risky due to its stability. As a result, it can only produce minimal profits.

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For example, the price of an ounce of gold has risen from $1,630 in January 2021 to $1,820 presently, indicating both growth and risk.

During the same time period, the US dollar’s real worth declined by 11%. This illustrates that gold has been a solid inflation hedge over the last decade, but not a great money maker.

Bitcoin’s price has risen dramatically in the last decade. Due to the volatility, investors have taken a risk, but they have profited greatly.

In this comparison, gold and BTC are clearly distinct. It’s inappropriate to compare Bitcoin’s price movement to inflation risk hedges like gold.

Bitcoin and Other Assets

When Goldman Sachs recommends comparing Bitcoin’s price performance to other assets that are regarded to be strong inflation hedges but also have dangers, like copper, it’s probably a good idea.

Copper was worth $8.5 ten years ago. About $9.7 now. Then it rose 14% in ten years, just above gold. Many believe copper is a better investment than BTC since it resembles gold.

In other words, there aren’t any genuine benchmarks to assess if Bitcoin can be used to hedge against inflation.

Dollar vs. Bitcoin

Maybe it’s just helpful to evaluate it to the US dollar, which would be the world’s main currency.

Since last year, Bitcoin’s face value has increased 15% while the dollar’s true value has decreased 7%. Since Bitcoin cycles last around 4 years, the dollar value of BTC has climbed by 180 percent, despite the dollar losing 11% and the euro losing 7%.

Anti-inflationary

BTC appears to be a long-term and risky approach to protect against inflation.

Taking away the necessity for low risk, like gold, Bitcoin appears to be a viable inflation hedge. But, with more risk than gold, it isn’t usually a viable short- or medium-term investment. Those who acquired bitcoin and held it for 4 years or more never lost it.

Those who bought gold in August 2011 had to wait nearly nine years to profit.

We shouldn’t overlook how much a risk-off asset differs from a risk-on asset. For those willing to take risks, BTC may be a superior inflation hedge than gold. But there’s no guarantee the value will hold or return.

“The views and opinions on this Crypto News Website are solely those of the authors and contributors. These views and opinions do not necessarily represent those of iBaseTrading or its partners.”

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Jane De Leon is a news writer covering all things related to DeFi and NFTs. In the past, she has worked for a well-known Business Newspaper. She originally began investing in Bitcoin after hearing about it from her brother and hasn’t looked back since.