The Fed’s continued printing of money, the worldwide economic uncertainties and the depreciation of some currencies; Bitcoin has increased the demand for financial instruments such as gold and bonds. With rising inflation concerns, Bitcoin’s stance against inflation has been the subject of some controversy.
Problems in the economy since 2020 have caused citizens around the world to seek various ways to protect themselves financially. Bitcoin, on the other hand, surpassed many financial asset classes, including gold, during this time and took the 1st place with its performance. BTC,
It increased by 162% in 2020 and was the best performing asset. Bitcoin was followed by the Nasdaq 100 with 42% and gold with 20%.
Can Bitcoin, which outperforms other asset classes with its performance, really act as a hedge against inflation? First, let’s answer the question by talking about what inflation is.
What is inflation?
The price of goods and services in an economy can change over time. Inflation is when the price increase in these particular goods and services is sustained and high. For example, if a product that could be bought for 5 Turkish liras before has become too expensive to buy now, inflation comes to mind.
According to the Central Bank of the Republic of Turkey (CBRT), inflation; It refers to the overall and sustained increase in the prices of goods and services in an economy. Keeping inflation balanced in economies plays a role in ensuring price stability and, accordingly, in ensuring economic stability.
The CBRT explains the causes of inflation for 4 main reasons:
-Demand: Inability of goods and services to keep pace with the increase in aggregate demand
-Cost: Decrease in supply as a result of increase in production prices, increase in prices
-Money supply: When the money supply increases, investment and consumption rise, and prices move upwards.
Inflation expectations: Inflation expectations of consumers and producers can shape the prices of goods and services.
Apart from these, in the face of the already high prices of goods and services, businesses will have to increase their prices even more in order to continue their activities. This is another factor that causes inflation.
What are the expectations for inflation?
Former IMF chief economist Oliver Blanchard, in his article published in April 2020, says that under current conditions, he believes more that future inflation will be low, but that there is a slight possibility of high inflation.
MIT economist Kristin Forbes said that policymakers should be prepared for different scenarios and emphasized that there is a serious recession.
In a survey conducted by Bank of America in January, investors revealed that Bitcoin is the most popular investment choice.
While 73 percent of the respondents believe that the world economy will grow, they expect stimulus packages to lead to an increase in inflation.
Why is Bitcoin seen as a hedge against inflation?
According to Forbes writer Roger Huang, Bitcoin may play the same role in the 21st century as gold played in the 20th century.
At the same time, Bitcoin’s limited supply of 21 million is interpreted as a feature that makes it resistant to inflation. With this feature, Bitcoin, which has a circulating supply of 18.6 million and whose production is expected to end in 2140, makes it an asset similar to gold.
It is said that Bitcoin, also known as digital gold, will see more demand over time thanks to its scarce supply, and its price will increase accordingly.
For people who prefer assets that are seen as a store of value in adverse conditions and generally believed to have high returns, Bitcoin can be seen as both a hedge against inflation and a good investment tool.
With its performance over the years, Bitcoin has started to be seen as a safe haven like gold.
Bitcoin’s safe-haven status has risen, especially as institutional investors began to show demand for Bitcoin and touted that they saw BTC as a store of value. For example, Microstrategy CEO Michael Saylor, who has 91,064 Bitcoins under his management,
He is one of the strongest advocates of BTC as a store of value and safe haven.
Many comments have been made that Bitcoin can replace gold, for reasons such as being seen as a safe haven, scarce supply, high performance, and a hedge against inflation. Speaking to CNN Business, Steve Ehrlich, CEO of Voyager Digital, said:
“Bitcoin can replace gold,” emphasizing that there is a limited number of cryptocurrencies. said. Alger strategist Brad Neuman, on the other hand, made statements that Bitcoin may be a better choice than gold.
Nikolaos Panigirtzoglou of JP Morgan,
He made statements that those who want to be protected from inflation can start buying Bitcoin instead of gold. Throughout the pandemic, Bitcoin has surpassed the 20% gain from gold.