What the heck ever happened to bitcoin serving as a tool that works against inflation? Bitcoin garnered this reputation last year during the coronavirus pandemic, but as it turns out, prices are continuing to rise, and the world’s number one digital currency by market cap has seemingly failed to get in the way.
Bitcoin Is Not Working to Halt Inflation
Many analysts are beginning to wonder why bitcoin is allegedly refusing to do its job. For the longest time, bitcoin was nothing more than a speculative asset that given its volatility, could make somebody hugely rich overnight. However, this time around, it does not look like this is what is going on. In fact, consumer prices just jumped to their highest positions in approximately 13 years, while bitcoin has continued to slip lower and sit on the backburner.
This has happened a few times before, which is leading many to believe that the whole “anti-inflation” argument is without merit. Another point where this occurred was in May. The asset fell as much as seven percent while consumer prices were rising at their fastest rates since the year 2008. During a moment like this, assets like bitcoin should ultimately experience higher price margins, though it appears the opposite has occurred.
Ed Moya – senior equity analyst at Oanda – explained in a statement:
Bitcoin is not behaving like an inflation hedge anymore and will continue to remain heavy over expectations over higher yields.
If anything, it shows that bitcoin has not managed to mature quite in the way analysts and financial heads initially thought. It was believed that with the economy facing so many issues last year due to the pandemic that bitcoin was managing to stay strong. Thus, it was finding its ground in the financial space after roughly 12 years on the market.
However, looking at the facts, one can argue that the currency has not matured, and is no stronger than it was a decade ago. Rather, all that has happened is that bitcoin has learned to expand its price range beyond what people initially thought possible. Things like this are typically good for short-term gains and investment strategies, but in the long term, the idea that bitcoin is no better off is a bit scary.
Some Still Believe
Despite the present market conditions, there are some that refuse to back down from their bullish stances. John Wu – president of Ava Labs – recently stated:
Bitcoin is still a hedge for inflation in the long run for most investors. However, given the number of new investors in the space, there are investors that think of it as a risk asset and those incremental investors may be selling in the short term as a source of funds.
At the time of writing, BTC is trading for just under $33,000 per unit.
