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

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1 month 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

3iQ’s Canadian Solana ETF selects Figment as staking provider

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3 hours ago

April 15, 2025

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3iQ’s Canadian Solana ETF selects Figment as staking provider

Blockchain infrastructure provider Figment has been selected as the staking provider for 3iQ’s newly approved Solana exchange-traded fund (ETF), underscoring Canada’s continued efforts toward adoption of digital asset financial products.

Figment will enable institutional staking for the 3iQ Solana (SOL) Staking ETF, which launches on the Toronto Stock Exchange on April 16 under the ticker SOLQ, the companies said in a statement. In addition to 3iQ, Figment provides staking infrastructure solutions to more than 700 clients.

The Ontario Securities Commission (OSC), a provincial regulator, green-lighted 3iQ’s SOL fund on April 14. The approval was also extended to other fund managers seeking to offer SOL ETFs, including Purpose, Evolve and CI.

As Bloomberg ETF analyst Eric Balchunas reported at the time, the funds are permitted to stake a portion of their SOL holdings through TD Bank, Canada’s second-largest financial institution by assets.

3iQ estimates that its SOL fund will provide yields of between 6% and 8%, according to its website.

3iQ leads Canadian crypto ETFs as US regulators drag their feet

As US regulators continue to consider various crypto-related fund offerings, Canada has been leading the curve in adoption going back to 2021. That was the year that 3iQ debuted its spot Bitcoin (BTC) ETF, which crossed $1 billion in net assets almost immediately.

It would take nearly three more years before spot Bitcoin ETFs were approved in the United States. Like their Canadian counterparts, the US ETFs saw overwhelming success in their first year, generating more than $38 billion in net inflows.

In October 2023, 3iQ launched an ETF tied to Ether (ETH), giving investors direct access to the smart contract platform. Unlike the Ether ETFs that US regulators approved the following year, 3iQ’s fund offers staking rewards.

As Cointelegraph recently reported, US regulators may be on the cusp of approving staking rewards after they authorized exchanges to list options contracts tied to ETH.

Politics

Ethena Labs exits German market following agreement with BaFin

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7 hours ago

April 15, 2025

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Ethena Labs exits German market following agreement with BaFin

Synthetic stablecoin developer Ethena Labs is winding down its German operations less than a month after regulators identified “deficiencies” in its dollar-pegged USDe (USDE) stablecoin, signaling heightened scrutiny around crypto assets in Europe’s largest economy.

Ethena Labs reached an agreement with Germany’s Federal Financial Supervisory Authority, also known as BaFin, to cease all operations of its local subsidiary, Ethena GmbH, according to an April 15 announcement.

Germany, European Union, Stablecoin, MiCA — *Source:* *Ethena Labs*

As such, Ethena Labs “will no longer be pursuing MiCAR authorization in Germany,” the company said, referring to the Markets in Crypto-Assets Regulation.

The company reiterated that Ethena’s German subsidiary has not conducted any mint or redeem activity for USDe since March 21, the day BaFin halted the stablecoin’s activities. As Cointelegraph reported at the time, the German regulator identified compliance failures and potential securities law violations tied to USDe.

“All whitelisted mint and redeem users previously interacting with Ethena GmbH have at their request been onboarded with Ethena (BVI) Limited instead and have no ongoing relationship with Ethena GmbH whatsoever,” the company said.

Unlike popular stablecoins USDt (USDT) and USDC (USDC), Ethena’s USDe maintains its dollar peg through an automated delta-hedging strategy that includes a combination of spot holdings, onchain custody and liquidity buffers.

USDe is the fourth-largest stablecoin with a total circulating value of $4.9 billion, according to CoinMarketCap.

MiCA tightens the noose around stablecoin usage

MiCA is a comprehensive framework for cryptocurrency usage across the European Union, enforcing strict compliance standards and consumer protections.

To meet the new requirements, stablecoin issuers must have adequate reserves backing their tokens, ensure reserve assets are segregated from users’ assets and fulfill regular reporting obligations.

As of February, 10 stablecoin issuers have been approved under MiCA, including Circle, Crypto.com, Societe Generale and Membrane Finance.

Patrick Hansen, Circle’s senior director of EU strategy and policy, told Cointelegraph that a total of 10 euro-pegged stablecoins and five US dollar-pegged stablecoins have been approved so far.

However, notably absent from the list is USDt issuer Tether, which has decided not to pursue MiCA registration at this time.

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Politics

Crypto’s debanking problem persists despite new regulations

Published

11 hours ago

April 15, 2025

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Crypto’s debanking problem persists despite new regulations

The crypto industry’s inability to access banking services still concerns many industry observers despite recent policy victories.

In past years, financial services firms and banks concerned about fiduciary risk, reporting liabilities and reputational risk often would refuse to offer service to crypto firms — i.e., “debanking” them.

Legislative efforts in the United States and Australia are attempting to remove these barriers for the crypto industry. In the former, legislators repealed guidelines that made it difficult for banks to custody crypto assets, as well as those stating that crypto carried “reputational risk” for banks. In the latter, the Labor Party has introduced a bill to create a legal framework for crypto, giving banks the clarity they need to interact with the crypto industry.

Despite these tangible efforts, some crypto industry observers say that the crypto’s debanking problem is far from over.

US crypto execs say debanking is still an issue

The crypto industry has long decried “Operation Chokepoint 2.0,” its nickname for a suite of policies that they claim constrained the crypto industry from growing under the administration of former President Joe Biden. Among these were measures making it more difficult for crypto firms to access banking services.

The early days of the second administration of President Donald Trump have seen many of these repealed or changed. One of the first was the repeal of Staff Accounting Bulletin 121, which required banks offering custody for customers’ cryptocurrencies to list them as liabilities on their balance sheets — this made it very difficult for banks to justify offering such services.

The administration also appointed a new head of the Office of the Comptroller of the Currency (OCC), Rodney Hood. Dennis Porter, CEO of the Bitcoin-focused policy organization Satoshi Action, told Cointelegraph that under Hood’s tenure, the OCC has already said banks can offer crypto-related services like custody, stablecoin reserves and blockchain participation.

“This opens the door for broader adoption of digital asset technology and custodial services by traditional financial institutions, signaling a major shift in how banks engage with crypto,” he said.

Despite these victories, Caitlin Long, founder and CEO of Custodia Bank, said on March 21 that debanking is likely to remain a problem for crypto firms into 2026.

Long said the non-partisan board of governors of the Federal Reserve is “still controlled by Democrats,” alluding to Democrats’ more skeptical stance on crypto. Long claimed that “there are two crypto-friendly banks under examination by the Fed right now, and an army of examiners was sent into these banks, including the examiners from Washington, a literal army just smothering the banks.”

Long noted that Trump won’t be able to appoint a new Fed governor until January, meaning that, while other agencies may be more crypto-friendly, there are still roadblocks.

Australia’s Labor Party to create crypto framework

Stand With Crypto, the “grassroots” crypto advocacy organization started by Coinbase that has spread to the US, UK, Canada and Australia, said that “in Australia, debanking is quietly shutting out innovators and entrepreneurs — particularly in the crypto and blockchain space.”

In a post on X, the organization claimed that debanking results in “reputational damage, loss of revenue, increased operational costs, and inability to launch or sustain services.” It also claimed that it forces some companies to move offshore.

In response to these concerns, the ruling center-left Labor Party in Australia has proposed a new set of laws for the cryptocurrency industry. The changes to current financial services law seek to tackle the issue of debanking in the country’s cryptocurrency industry.

Edward Carroll, head of global markets and corporate finance at MHC Digital Group — an Australian crypto platform — told Cointelegraph that in Australia, debanking decisions were “not the result of regulatory directives.”

“Rather, they appear to stem from a more general sense of risk aversion due to the current lack of a clear regulatory framework.”

Carroll was optimistic about the Labor Party’s proactive stance. The major political parties were “showing a shift in sentiment and a shared commitment to establishing formal crypto regulation.”

“We are hopeful that this will give banks the confidence to reengage with crypto businesses that meet compliance standards,” he said.

Canada unlikely to relieve crypto firms

In Canada, “debanking remains a serious and ongoing challenge for the Canadian crypto industry,” according to Morva Rohani, executive director of the Canadian Web3 Council.

“While some firms have successfully established relationships with banking partners, many continue to face account closures or denials with little explanation or recourse,” she told Cointelegraph.

While debanking actions aren’t explicit, financial institutions’ interpretation of Anti-Money Laundering and Know Your Customer regulations “creates a risk-averse environment where banks weigh compliance and reputational concerns against the relatively low revenue potential of crypto clients.”

The end result, per Rohani, is a systemic debanking problem for the digital assets industry.

But unlike in the US and Australia, the Canadian crypto industry may not find relief anytime soon. Prime Minister Mark Carney, whose more crypto-skeptic Liberal Party is surging in the polls ahead of the April 28 snap elections, is himself a crypto-skeptic.

Carney has stated that the future of money lies more in a “central bank stablecoin,” otherwise referred to as a central bank digital currency.

Rohani said that “no comprehensive legislative solution has been implemented” with regard to debanking. “A more structured approach, including mandated disclosure of reasons for account termination and regulatory oversight, is needed,” she said.

Critics claim crypto is “hijacking” the debanking issue

There is another side to the debanking debate, which claims that crypto’s debanking “problem” is a non-issue or a vehicle for crypto firms to get what they want in terms of regulation.

Molly White, the author of Web3 Is Going Just Great and the “Citation Needed” newsletter, has noted that, in the US at least, crypto firms have claimed to be victims of debanking while lauding Trump’s efforts to end protections for debanking at the same time.

In a Feb. 14 post, White stated that the crypto industry had “hijacked” the discussion around debanking, which contains legitimate concerns regarding access to financial services — particularly regarding discrimination due to race, religious identity or industry affiliation.

She claims the crypto industry has used debanking as a means to deflect legitimate regulatory inquiries into crypto companies’ compliance efforts.

Further of note is the fact that Coinbase CEO Brian Armstrong has applauded the efforts of the Department of Government Efficiency (DOGE), with Elon Musk at the helm, to dismantle the Consumer Financial Protection Bureau (CFPB).

One of the CFPB’s responsibilities is to investigate claims of debanking. But when DOGE instructed the agency to halt all work, Armstrong said it was “100% the right call,” in addition to making dubious claims about the agency’s constitutionality.

In the meantime

Whether the industry’s debanking concerns stem from legitimate discrimination or an attempt at regulatory capture, crypto firms are developing solutions in the interim.

Porter said that, as an alternative to banking services, “many crypto companies have leaned on stablecoins as a primary tool for managing finances,” while others have worked with “smaller regional banks or specialized trust companies open to digital assets.”

Rohani said that this kind of “patchwork of relationships” can increase operational costs and risks and are “not sustainable long-term solutions for growth or to build a competitive, regulated industry.”

Porter concluded that the banking workarounds could actually strengthen the industry’s position, stating that they may “continue evolving into fully integrated relationships with traditional financial institutions, further cementing crypto’s place in mainstream finance.”

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