Bitcoin extended its gains after data showed that US consumer prices rose at the fastest rate in nearly four decades.
Bitcoin extended its gains after a report showed that US consumer prices rose at the fastest rate in nearly four decades.
The largest cryptocurrency by market value has long been touted as an inflation hedge, in part due to its fixed offering. Bitcoin rose as much as 4.4% to $ 50,101 in New York trading on Friday. The coin has been bouncing around the $ 50,000 level since a sudden drop over the weekend that saw it drop as much as 21% on Saturday.
“Bitcoin is still seen as an inflation hedge, especially for younger investors,” said Matt Maley, chief market strategist at Miller Tabak + Co. “Since it has few restrictions at the moment, some investors see it as an asset. flight to safety. “
Cryptocurrency advocates have long argued that Bitcoin and other digital assets, because they are an idiosyncratic asset class, could act as hedges against fluctuations in other areas of the financial market. Only 21 million Bitcoin will be put into circulation under the computer protocol that governs the issue, although that figure is not expected to be reached for several decades.
Many notable Wall Street investors and analysts have embraced the idea of using cryptocurrencies as a hedge against rising prices. Veteran hedge fund manager Paul Tudor Jones has said in the past that he likes it as a store of wealth. Meanwhile, MicroStrategy Inc.’s Michael Saylor said the Federal Reserve’s easing of inflation policy helped convince it to invest the enterprise software maker’s cash in Bitcoin.
– Michael Saylor⚡️ (@saylor) December 10, 2021
The consumer price index rose 6.8% last month from November 2020, according to Labor Department data released Friday. Those who look at Bitcoin’s charts closely noticed that its gains accelerated following the release of the data.
Still, there are also many arguments against. The correlations may not be what they seem, according to Marc Chandler, chief market strategist at Bannockburn Global Forex. He notes that stocks rallied after the report as well, so the correlation could be with risk assets, he says.
Others argue that Bitcoin hasn’t been around long enough to polish its inflation hedging image. Also, according to Cam Harvey, a Duke University professor and Research Affiliates partner, it behaves too much like a speculative asset and is prone to periodic crashes.
“If Bitcoin is ‘digital gold’ and gold is an inflation hedge, then it follows that Bitcoin is too, right? Unfortunately, there is no evidence to support this, and even the relationship between inflation and gold has been tenuous over the years, ”wrote Noelle Acheson of Genesis Trading, in a report. “In the long term, however, gold has held its value more than, while fiat currencies have declined; Bitcoin could end up doing the same. “