Is Bitcoin an Inflation Hedge?

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Putting money into stores of valuable investments like gold, real estate, stocks, and crypto helps curb inflation.

As cash loses purchasing power over time, holding it leads to people losing their savings. This has prompted people to put their money into value investments such as gold, real estate, stocks and, now, crypto. Will Bitcoin protect against inflation has been a question in town ever since.

To be held as a store of value, an asset must be able to retain its purchasing power over time. In other words, it should increase in value or at least remain stable. The main properties associated with these assets are scarcity, accessibility and durability.

Gold as inflation protection

In past inflationary periods, gold has had a mixed record. In the 1980s, there were times when holding gold gave owners negative returns.

Morningstar Data given an overview of how gold has had an uneven track record in past inflationary periods. A commodity that is supposed to hedge against inflation is expected to rise when consumer prices rise. During periods of high inflation, particularly in the 1980s, there were times when owners of gold ended up with negative returns.

In recent times, gold has slowly lost its luster as a hedge. During the pandemic and even when the waves have calmed down, people are less interested in gold. It is still considered good enough to hold value over the long term, but in the short term the metal is now considered less reliable.

Real estate as a hedge against inflation

The bursting of the housing bubble in the United States underscored that real estate could not always be considered a hedge against inflation.

For a long time, real estate was considered an effective hedge against inflation. This myth, however, was shattered in the US housing bubble. In March 2007, home sales and prices in the country suffered a sharp decline. As revealed by data from the National Association of Realtors (NAR), sales fall 13% to 482,000 from a peak of 554,000 in March 2006.

In America and around the world, real estate prices are closely linked to factors such as government policy, political and economic stability of the country, local demographics and economy, geographical location and infrastructure, among others. . The parameters are simply too numerous for the ordinary person to understand.

Stocks as inflation protection

Long-term investing in stocks helps mitigate the effects of inflation. Just make sure the company has solid fundamentals.

Certain stocks help protect the value of your investment. Even though these stocks are hit by impatient short-term investors, they recover well over time. But you have to take into account that not all stocks work well in hedging inflation. You need to find companies that have strong fundamentals and are more likely to generate better dividends for their shareholders.

A Common Thread: Linking Gold, Real Estate and Equities to Centralized Entities

Traditional asset classes are controlled by centralized authorities, which makes them vulnerable to bias and pressure.

The value proposition of all conventional asset classes is invariably linked to the policies of centralized authorities such as governments or federal banks. An asset so intrinsically associated with a system in which asset holders cannot interfere is not really a reliable hedge, because centralized authority exercises one-button control over the procedure.

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