In a recent analysis by NYDIG, new insights challenge the widely held belief that Bitcoin functions as a hedge against inflation, often referred to as “digital gold.” The research, led by Greg Cipolaro, suggests that the correlation between Bitcoin’s price and inflation is inconsistent and relatively weak, raising questions about its status as an inflation safeguard.
Cipolaro’s examination reveals that the monthly correlation data shows a lack of reliability in Bitcoin’s relationship to inflationary measures. Despite common narratives within the cryptocurrency community, the evidence does not strongly support the idea that Bitcoin acts as an effective hedge against rising consumer prices. He noted that while the community promotes Bitcoin for this purpose, the actual data indicates otherwise.
The findings mirror trends seen in gold, traditionally viewed as a safe haven against inflation. Cipolaro highlights that gold’s correlation with inflation has not only been inconsistent, but in some instances, it has been negative. This contradicts the conventional wisdom that inflation automatically propels gold prices upward.
The factors that appear to influence both Bitcoin and gold more significantly revolve around real interest rates and the availability of money supply. Historically, decreasing real interest rates, which account for inflation, have hinted at price increases for gold. Notably, Bitcoin, despite its relative novelty, is exhibiting a comparable trend; the inverse relationship between Bitcoin prices and real interest rates has reportedly strengthened in recent years. This may be attributed to Bitcoin’s increasing integration into the global financial landscape.
NYDIG’s conclusion suggests that investors should reconsider their view of Bitcoin as an inflation hedge. Instead, the analysis posits that Bitcoin should be viewed more as an indicator of global liquidity, responding primarily to shifts in interest rates and capital flows rather than changes in everyday expenses like groceries or gas.
In summary, Cipolaro articulates a clearer distinction between the two assets: while gold tends to act as a hedge against real interest rates, Bitcoin is evolving into a barometer of liquidity, reflecting broader market dynamics rather than merely inflationary pressures.
