Bitcoin comes of age as a new inflation hedge

Bitcoin has risen by 370% since mid-March, with its ability to hedge against inflation a big part of its appeal.

“A fraud, a rip-off, a sucker’s bet.” But for all the invective heaped upon it, bitcoin continues to soar, says Edward Robinson on Bloomberg. The cryptocurrency eclipsed $20,000 last week and then charged on, briefly hitting $24,000. Bitcoin has risen by 370% since mid-March. 

But this is still a highly volatile asset that can plunge by 10% at the drop of the hat. Investors who bought in at the height of the last boom in 2017 found themselves enduring a long bear market. Bitcoin isn’t even this year’s best-performing digital currency: its 184% gain is overshadowed by the near 360% rise of Ether, another cryptocurrency, notes Paul Vigna in The Wall Street Journal. 

The big difference from 2017 is that professional investors are now jumping on board. British investment manager Ruffer recently disclosed that it “was holding about $744m of bitcoin”. The currency is increasingly regarded as a mainstream asset class and source of diversification, says Izabella Kaminska in the Financial Times. This year “bitcoin went institutional”. Perhaps the best argument in the currency’s favour is that it is “still standing”: after 12 years of scrutiny, hacks and speculative frenzy, bitcoin is resilient, “if not flourishing”.  

Its potential as an inflation hedge has long been part of its appeal, says Noelle Acheson on coindesk.com. Only 21 million bitcoins will ever be created. It is also increasingly regarded as protection against all the ills that can accompany an inflationary disaster: authoritarian governments and social instability. Bitcoin might seem weird, but then conventional politics and economics is also getting weird – witness the rising popularity of “modern monetary theory” (MMT). “More than a hedge against inflation,” its fans hope bitcoin is “a hedge against ‘crazy’.”

Recommended

Is the oil market heading for a supply glut?
Oil

Is the oil market heading for a supply glut?

Many people assume that the high oil price is here to stay – and could well go higher. But we’ve been here before, says Max King. History suggests tha…
16 May 2022
A family-run investment trust to buy and lock away
Investment trusts

A family-run investment trust to buy and lock away

Menhaden Resource Efficiency made a slow start, but progress is encouraging. Buy before the discount closes, says Max King.
16 May 2022
Get set for another debt binge as real interest rates fall
UK Economy

Get set for another debt binge as real interest rates fall

Despite the fuss about rising interest rates, they’re falling in real terms. That will blow up a wild bubble, says Matthew Lynn.
15 May 2022
Hong Kong’s brain drain
Chinese economy

Hong Kong’s brain drain

A change in the political atmosphere and a harsh zero-Covid regime has seen thousands flee the global financial hub. Does it have a future – or will S…
14 May 2022

Most Popular

High inflation will fade – here’s why
Inflation

High inflation will fade – here’s why

Many people expect high inflation to persist for a long time. But that might not be true, says Max King. Inflation may fall faster than expected – and…
13 May 2022
Cryptocurrencies are crashing – so how low will bitcoin go?
Bitcoin & crypto

Cryptocurrencies are crashing – so how low will bitcoin go?

The entire cryptocurrency sector is crashing, with bitcoin now well below $30,000. This is big, says Dominic Frisby. So just how low could bitcoin go?
12 May 2022
What the Ukraine crisis might mean for ESG investing
Advertisement Feature

What the Ukraine crisis might mean for ESG investing

The Ukraine crisis has brought many of the issues around ESG investing into sharper focus. Where does the sector go from here?
3 May 2022