14 Dec 2021

Bitcoin has been an excellent inflation hedge during covid

Since January 2020, holding bitcoin would have increased your purchasing power by 520%. In a highly inflationary period, isn't this return enough to be called an inflation hedge?
Source: Tradingview, U.S. Bureau of Labor Statistics
On Friday, the U.S. Bureau of Labor Statistics released the CPI for November, showing that U.S. inflation hit a 6.8% annualized rate.The bitcoin price didn't increase in the days following the higher-than-expected CPI number release, but this doesn't mean that we should write off bitcoin as an inflation hedge. The CPI is a lagging indicator - measuring inflation that has already occurred. If bitcoin is an inflation hedge, the inflation that has already happened should theoretically be priced into bitcoin by the time the CPI is released.A higher-than-expected CPI increases the probability that the FED might have to increase tapering. A more hawkish monetary policy is bearish for bitcoin, so if anything, a higher-than-expected CPI should theoretically decrease the price for bitcoin in the short term.The most straightforward way to judge bitcoin as an inflation hedge is to look at its performance since the beginning of 2020. During this period, characterized by high inflation caused by unprecedented monetary stimulus and supply-chain issues, bitcoin has delivered a real return of 520%.During the same period, gold has had a real return of 8%, while the S&P 500 has returned 33% in real terms. Bitcoin's unmatched returns during this highly inflationary period illustrates that bitcoin has indeed been an excellent inflation hedge.
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