Recent insights from NYDIG challenge the prevailing narratives surrounding Bitcoin’s role as a hedge against inflation. Many in the cryptocurrency community have long positioned Bitcoin as a safeguard against rising prices due to its fixed supply and decentralized nature. However, Greg Cipolaro, NYDIG’s global head of research, pointed out that the data does not support this view strongly. In a note released Friday, he emphasized that the correlations between Bitcoin and various inflationary measures are neither consistent nor robust.
Cipolaro noted that while expectations of inflation could influence Bitcoin’s price movements, they don’t reveal a close correlation. This raises questions about Bitcoin’s touted status as “digital gold.” Historically, gold has been considered a reliable hedge against inflation; however, Cipolaro argued that gold has also demonstrated an inverse correlation with inflation, which is surprising for an asset traditionally regarded as providing inflation protection.
On the other hand, Cipolaro observed that a weakening US dollar tends to positively impact both Bitcoin and gold prices. He explained that gold prices generally rise as the dollar declines when measured against other currencies. “Bitcoin also has an inverse correlation to the US dollar,” he noted, although he acknowledged that this relationship is less consistent and newer compared to gold’s. He expressed optimism that, as Bitcoin becomes further integrated into traditional financial systems, its inverse correlation with the dollar may solidify.
Cipolaro identified interest rates and money supply as the primary macroeconomic drivers influencing Bitcoin’s and gold’s price movements. Historically, gold has shown an upward trajectory when interest rates fall and a downward trend as rates rise. This pattern, he asserted, has similarly emerged for Bitcoin over time. The relationship between global monetary policy and Bitcoin has proven to be consistently positive, suggesting that looser monetary conditions generally benefit the cryptocurrency.
The evolving nature of Bitcoin’s price movements relative to macroeconomic conditions reflects its increasing integration into the global financial landscape, Cipolaro concluded. “Gold serves as a real-rate hedge, whereas Bitcoin has evolved into a liquidity barometer,” he stated, indicating that while Bitcoin may not excel as an inflation hedge, it is taking on new roles within the economy.
