Bitcoin’s role as an inflation hedge depends on where one lives — Analyst

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6 hours ago

March 15, 2025

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Bitcoin’s role as an inflation hedge depends on where one lives — Analyst

For years, inflation was primarily a concern for emerging markets, where volatile currencies and economic instability made rising prices a persistent challenge. However, in the wake of the COVID-19 pandemic, inflation became a global issue. Once-stable economies with historically low inflation were suddenly grappling with soaring costs, prompting investors to rethink how to preserve their wealth.

While gold and real estate have long been hailed as safe-haven assets, Bitcoin’s supporters argue that its fixed supply and decentralized nature make it the ultimate shield against inflation. But does the theory hold up?

The answer may depend largely on where one lives.

Bitcoin advocates emphasize its strict supply limit of 21 million coins as a key advantage in combating inflationary monetary policies. Unlike fiat currencies, which central banks can print in unlimited quantities, Bitcoin’s supply is predetermined by an algorithm, preventing any form of artificial expansion. This scarcity, they argue, makes Bitcoin akin to “digital gold” and a more reliable store of value than traditional government-issued money.

Several companies and even sovereign nations have embraced the idea, adding Bitcoin to their treasuries to hedge against fiat currency risk and inflation. The most notable example is El Salvador, which made global headlines in 2021 by becoming the first country to adopt Bitcoin as legal tender. The government has since been steadily accumulating Bitcoin, making it a key component of its economic strategy. Companies like Strategy in the US and Metaplanet in Japan have followed suit, and now the United States is in the process of establishing its own Strategic Bitcoin Reserve.

A Bitcoin investment strategy has paid off so far

So far, the corporate and government Bitcoin investment strategy has paid off as BTC outperformed the S&P 500 and gold futures since the early 2020s before inflation surged in the United States.

More recently, however, that strong performance has shown signs of moderation. Bitcoin remains a strong performer over the past 12 months, and while BTC’s gains outpace consumer inflation, economists caution that past performance is no guarantee of future results. Indeed, some studies suggest a correlation between cryptocurrency returns and changes in inflation expectations is far from consistent over time.

Bitcoin’s role as an inflation hedge depends on where one lives — Analyst

Returns over the past 12 months. Source: Truflation.

Bitcoin’s role as an inflation hedge remains uncertain

Unlike traditional inflation hedges such as gold, Bitcoin is still a relatively new asset. Its role as a hedge remains uncertain, especially considering that widespread adoption has only gained traction in recent years.

Despite high inflation in recent years, Bitcoin’s price has fluctuated wildly, often correlating more with risk assets like tech stocks than with traditional inflation hedges like gold.

A recent study published in the Journal of Economics and Business found that Bitcoin’s ability to hedge inflation has weakened over time, particularly as institutional adoption grew. In 2022, when US inflation hit a 40-year high, Bitcoin lost more than 60% of its value, while gold, a traditional inflation hedge, remained relatively stable.

For this reason, some analysts say that Bitcoin’s price may be driven more by investor sentiment and liquidity conditions than by macroeconomic fundamentals like inflation. When the risk appetite is strong, Bitcoin rallies. But when markets are fearful, Bitcoin often crashes alongside stocks.

In a Journal of Economics and Business study, authors Harold Rodriguez and Jefferson Colombo said,

“Based on monthly data between August 2010 and January 2023, the results indicate that Bitcoin returns increase significantly after a positive inflationary shock, corroborating empirical evidence that Bitcoin can act as an inflation hedge.”

However, they noted that Bitcoin’s inflationary hedging property was stronger in the early days when institutional adoption of BTC was not as prevalent. Both researchers agreed that “[…]Bitcoin’s inflation-hedging property is context-specific and likely diminishes as it achieves broader adoption and becomes more integrated into mainstream financial markets.”

“So far, it has acted as an inflation hedge—but it’s not a black-and-white case. It’s more of a cyclical (phenomenon),” Robert Walden, head of trading at Abra, told Cointelegraph.

Walden said,

“For Bitcoin to be a true inflation hedge, it would need to consistently outpace inflation year after year with its returns. However, due to its parabolic nature, its performance tends to be highly asymmetric over time.”

Bitcoin’s movement right now, Walden said, is more about market positioning than inflation hedging—it’s about capital flows and interest rates.”

Argentina and Turkey seek financial refuge in crypto

In economies suffering from runaway inflation and strict capital controls, Bitcoin has proven to be a valuable tool for preserving wealth. Argentina and Turkey, two countries with persistent inflation throughout recent decades, illustrate this dynamic well.

Argentina has long grappled with recurring financial crises and soaring inflation. While inflation has shown signs of improvement very recently, locals have historically turned to cryptocurrency as a way to bypass financial restrictions and protect their wealth from currency depreciation.

A recent Coinbase survey found that 87% of Argentinians believe crypto and blockchain technology can enhance their financial independence, while nearly three in four respondents see crypto as a solution to challenges like inflation and high transaction costs.

With a population of 45 million, Argentina has become a hotbed for crypto adoption, with Coinbase reporting that as many as five million Argentinians use digital assets daily.

“Economic freedom is a cornerstone of prosperity, and we are proud to bring secure, transparent, and reliable crypto services to Argentina,” said Fabio Plein, Director for the Americas at Coinbase.

“For many Argentinians, crypto isn’t just an investment, it’s a necessity for regaining control over their financial futures.”

“People in Argentina don’t trust the peso. They are always looking for ways to store value outside of the local currency,” Julián Colombo, a senior director at Bitso, a major Latin American cryptocurrency exchange, told Cointelegraph.

“Bitcoin and stablecoins allow them to bypass capital controls and protect their savings from devaluation.”

Beyond individual investors, businesses in Argentina are also using Bitcoin and stablecoins to protect revenue and conduct international transactions. Some workers even opt to receive part of their salaries in cryptocurrency to safeguard their earnings from inflation.

According to economist and crypto analyst Natalia Motyl,

“Currency restrictions and capital controls imposed in recent years have made access to US dollars increasingly difficult amid high inflation and a crisis of confidence in the Argentine peso. In this environment, cryptocurrencies have emerged as a viable alternative for preserving the value of money, allowing individuals and businesses to bypass the limitations of the traditional financial system.”

While Bitcoin’s effectiveness as an inflation hedge is still up for debate, stablecoins have become a more practical solution in high-inflation economies, particularly those pegged to the US dollar.

Relative to its economic size, Turkey has emerged as a hotspot for stablecoin transactions. In the year leading up to March 2024, purchases alone accounted for 4.3% of GDP. This digital currency boom, fueled by years of double-digit inflation—peaking at 85% in 2022—and a more than 80% plunge in the lira against the dollar over the past five years, gained momentum during the pandemic.

Turkey’s Bitcoin adoption proves citizens drive adoption, not governments

Although Turkey allows its citizens to buy, hold, and trade crypto, the use of digital currencies for payments has been banned since 2021 when the Central Bank of the Republic of Turkey prohibited “any direct or indirect usage of crypto assets in payment services and electronic money issuance.” Nevertheless, crypto adoption in Turkey is still evident, with an increasing number of Turkish banks offering crypto services and shops and ATMs providing crypto exchange options.

High inflation rates backed the erosion of the Turkish lira’s value, which lost nearly 60% of its purchasing power as inflation soared to 85.5% between 2021 and 2023. This led many Turkish citizens to turn to Bitcoin as a store of value and a medium of exchange.

While some argue that Bitcoin’s scarcity bodes well for long-term appreciation, potentially outpacing consumer inflation, its high volatility and recurring correlation with tech-heavy, risk-associated indexes like the Nasdaq in recent times suggest that its performance as a pure inflation hedge remains mixed.

However, in inflation-ridden nations like Argentina and Turkey, where local currencies have collapsed in value, the “digital gold” has undeniably served as a crucial avenue of escape from local currencies, preserving purchasing power in ways traditional fiat cannot.

Although Bitcoin is still a nascent asset, and its effectiveness as a hedge requires further study, one thing remains clear—so far, it has significantly outperformed consumer inflation. For Bitcoin enthusiasts, that alone is reason enough to celebrate.

This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Politics

The two big unknowns left up in the air after Starmer’s ‘coalition of the willing’ Ukraine summit

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1 hour ago

March 15, 2025

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The two big unknowns left up in the air after Starmer's 'coalition of the willing' Ukraine summit

There was one clear, united message from today’s virtual meeting of leaders – that they rejected Vladimir Putin’s “yes, but” approach to a ceasefire.

The “coalition of the willing” – the 27 leaders, plus NATO and the EU led by Sir Keir Starmer and Emmanuel Macron – want the Russian president to mirror Ukraine’s pledge for a 30-day pause in fighting, in order to hammer out a sustainable peace deal.

Sir Keir made that very clear, and suggested the attendees at the meeting were behind this approach.

Ukraine war latest: Putin’s ceasefire conditions ‘not good enough’

The prime minister said: “Volodymyr [Zelenskyy] has committed to a 30-day unconditional ceasefire, but Mr Putin is trying to delay, saying there must be a painstaking study before a ceasefire can take place.

“Well, the world needs action, not a study, not empty words and conditions. So my message is very clear. Sooner or later, Putin will have to come to the table.”

There are two reasons for this challenge – an immediate end to fighting is a goal in itself, but many of those in today’s call, including Sir Keir, do not trust Mr Putin to uphold promises on peace and are trying to convince US President Donald Trump to be more clear-eyed about the Russian approach.

Challenging the Russian leader to follow the US request for a ceasefire and watching him refuse is designed to send a message to the White House as well as the Kremlin.

There were, however, bigger unknowns left hanging.

One of which was the clear signal from Sir Keir that he is still relying on a US security guarantee in order to bring on board a “coalition of the willing” who might be able to provide troops to Ukraine.

There are, however, many that don’t think that that US security guarantee is coming in any substantial way, based on the noises coming out of the US.

That is a big problem for the PM, as government sources tell me that the scope and the remit of any potential peacekeeping force is determined by what protection the US might be able to provide.

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The second issue that is being sidestepped by Sir Keir is what any peace keeping might be able to do in practice.

UK troops, like those of any NATO country, cannot engage directly with Russia in combat for fear of triggering a much bigger conflagration.

So if not that, then what is their purpose – a question repeatedly asked by experts like the former national security adviser Lord Ricketts.

I put exactly this to the PM, but did not get an answer. He suggested that we were a long way away from getting an an answer, even though military chiefs also appear to be meeting to “operationalise” plans on Thursday.

How can they operationalise a plan that does not, and currently cannot, have a remit?

Today Sir Keir heralded the participation of Canada, Australia and New Zealand on the call, as part of the effort.

But if the remit of the coalition of the willing isn’t clear, how can it truly be effective?

Politics

Starmer to host virtual meeting of ‘coalition of the willing’ – and demand ‘concrete commitments’ on Ukraine

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1 hour ago

March 15, 2025

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Starmer to host virtual meeting of 'coalition of the willing' - and demand 'concrete commitments' on Ukraine

Sir Keir Starmer will host a virtual meeting of world leaders today to discuss peacekeeping in Ukraine, and he will use the call to say that now is the time for “concrete commitments”, Downing Street has said.

Around 25 leaders are expected to join the call this morning, in which they will discuss in more detail the peacekeeping mission the prime minister has called the ‘coalition of the willing’.

Sir Keir will ask allies to continue to ramp up military support to Ukraine.

He will also say countries need to increase economic pressure on Russia in the short term, and be prepared to support an eventual peace deal over the long term, should an agreement be reached.

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Attendees will also receive an update on the discussions of defence ministers and military chiefs in Paris this week, and they will all set out details of their own efforts to unlock further military support for Ukraine.

Downing Street has confirmed that some European countries, the EU Commission, NATO, Canada, Ukraine, Australia and New Zealand are expected to join the virtual meeting.

Starmer: The world needs to see action

In a statement ahead of the call, the prime minister said: “We can’t allow President Putin to play games with President Trump’s deal.

“The Kremlin’s complete disregard for President Trump’s ceasefire proposal only serves to demonstrate that Putin is not serious about peace.

“If Russia finally comes to the table, then we must be ready to monitor a ceasefire to ensure it is a serious and enduring peace, if they don’t, then we need to strain every sinew to ramp up economic pressure on Russia to secure an end to this war.”

He went on to accuse the Russian president of “trying to delay” by “saying there must be a painstaking study before a ceasefire can take place”.

“The world needs to see action, not a study or empty words and pointless conditions,” he continued.

“My message to the Kremlin could not be clearer: stop the barbaric attacks on Ukraine, once and for all, and agree to a ceasefire now. Until then, we will keep working around the clock to deliver peace.”

Sir Keir has said Britain could send peacekeepers to Ukraine in the event of a ceasefire deal, but has called on Washington to offer a security ‘backstop’ to those forces.

Russia casts doubt on potential ceasefire

The meeting comes after Ukraine backed the US’s proposal for a 30-day ceasefire.

But the Russian president has said “lots of questions” remain over that proposal, and that a ceasefire must lead to “long-term peace” which “would remove the initial reasons for the crisis”.

Moscow has reportedly also presented a “list of demands” to the US to end the war, which would include international recognition of Russia’s claim to Crimea and four Ukrainian provinces and an agreement that foreign troops not be deployed in Ukraine.

Ukraine’s President Volodymyr Zelenskyy said Mr Putin’s remarks were “very predictable” and “very manipulative”, adding that the Russian president was preparing to reject the ceasefire proposal he agreed with the US.

Politics

‘We need to get a grip’ on welfare, chancellor says – as controversial cuts widely expected

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1 hour ago

March 15, 2025

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'We need to get a grip' on welfare, chancellor says - as controversial cuts widely expected

The chancellor has insisted that “we do need to get a grip” on the welfare budget, saying the “current system is not working for anyone”.

Rachel Reeves said the “bill for welfare is going up by billions of pounds in the next few years”, and argued the system should “get people into work so that more people can fulfil their potential”.

Her comments come ahead of an expected announcement next week of “radical” reforms to the welfare system, with many fearing drastic cuts to support for the most vulnerable.

Politics latest: UK needs to go ‘further and faster’ to grow the economy

Asked by broadcasters on Friday about those fears, the chancellor said: “Well, we’ll set out our plans for welfare reform. But it is absolutely clear that the current system is not working for anyone.

“It is not working for people who need support, it’s not working to get people into work so that more people can fulfil their potential, and it’s not working for the taxpayer when the bill for welfare is going up by billions of pounds in the next few years.

“So we do need to get a grip. We need to spend more on national defence, we need to reform our public services, and we need to reform our broken welfare system.”

Ms Reeves’s comments come after the work and pensions secretary said the current system has locked “millions” out of work and called it “dysfunctional” as the system places a person in binary categories of either “fit for work” or “not fit for work”.

The government has promised to either reform or replace the Work Capability Assessment – which determines if a person is fit for work or not – as they say it currently drives people who want to work “to a life on benefits”.

Ministers have been priming MPs and the public for cuts to a ballooning welfare bill since the start of the year, with details expected next week ahead of an announcement in the chancellor’s spring statement on 26 March.

The expected welfare cuts

Ms Reeves is expected to announce several billion pounds of spending cuts after losing her £9.9bn headroom since the October budget, with the welfare budget a key target for cuts.

Fiscal headroom is the amount by which government can increase spending or cut taxes without breaking its own fiscal rules.

The welfare cuts are expected to include £5bn in savings by making it harder to qualify for Personal Independent Payments (PIP), which help people with the additional costs of their disability.

PIP payments next year are also expected to be frozen and the basic rate for Universal Credit paid to those searching for work, or in work, is expected to be increased while the rate for those judged as unfit for work will be cut.

The department for work and pensions said new figures show 1.8 million people are now considered too sick to look for work due to a “broken work capability assessment” so are on Universal Credit but getting no support to find work.

It said the number has almost quadrupled since the start of the pandemic when 360,000 were considered too sick to look for work.

Labour MPs concerned about cuts

A growing number of Labour MPs are publicly raising concerns and, in an unusual move, all 404 Labour MPs were asked to attend “welfare roundtables” in Downing Street with the Number 10 policy unit on Wednesday and Thursday.

On Wednesday, Sir Keir Starmer faced down Labour MPs unhappy over the rumoured welfare cuts – especially for disabled people.

Richard Burgon pleaded with him to make the “moral” choice, telling the Commons disabled people are “frightened” as he urged the PM to introduce a wealth tax instead of “making the poor and vulnerable pay”.

Sir Keir pledged to “protect those who need protecting”, but later added there is no “bottomless pit”.

He said the Tories “left a broken welfare system, which locks millions out of work, that is indefensible in my view, economically and morally”.

Another Labour MP, John Slinger, urged the PM to reassure the Commons he will “provide compassion to those who can’t work”.

Labour MP Nadia Whittome told the BBC the government should impose a wealth tax instead of “placing that burden on disabled people who have already borne the brunt of 14 years of austerity”.

She added that she “can’t look her mum in the eye and support this”.