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.
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.”
US inflation index since 2020.Source. Truflation
“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.”
Argentina inflation index. Source. Truflation.
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.
Since taking office nine months ago Sir Keir Starmer has weathered party rows about winter fuel payments, the two child benefit cap, WASPI women, airport expansion and cuts to international aid.
All of these decisions have been justified in the name of balancing the books – filling that notorious £22bn black hole, sticking to the fiscal rules, and in the pursuit of growth as the government’s number one priority.
But welfare reform feels like a far more existential row.
Ministers have been making the point for weeks that the health benefits bill for working-age people has ballooned by £20bn since the pandemic and is set to grow by another £18bn over the next five years, to £70bn.
But the detail of where those cuts could fall is proving highly divisive.
Not the final version perhaps – but given all backbench Labour MPs who were summoned to meetings with the Number 10 policy teams for briefings this week, that response is perhaps more than a little disingenuous.
In his interview with Sir Trevor Phillips, he went on to make the broader case for PIP reform – highlighting the thousand people who sign up to the benefit every day and arguing that the system needs to be “sustainable”, to “deliver for those that need it most” and “provide the right kind of support for the different types of need that exist”.
To me this signals the government are preparing to unveil a tighter set of PIP eligibility criteria, with a refocus on supporting those with the greatest needs.
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1:13
Liz Bates: Will there be a backlash over benefits?
Changes to incapacity benefit to better incentivise working – for those who can – are also clearly on the cards.
The health secretary has been hitting out at the “overdiagnosis” of mental health conditions, arguing that “going out to work is better for your mental and physical health, than being spent and being stuck at home”, and promising benefit reforms that will help support people back to work rather than “trapped in the benefits system”.
Turning Tory?
Starmer said this week the current welfare system couldn’t be defended on economic or moral grounds.
The Conservatives don’t disagree.
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1:25
Conservatives: Scrapping NHS England is ‘right thing’
Before the election, they proposed £12bn in cuts to the welfare bill, with a focus on getting people on long-term sickness back to work.
This morning, shadow education secretary Laura Trott claimed Labour denied that welfare cuts were needed during the election campaign and had wasted time in failing to include benefits reform in the King’s Speech.
“They’re coming to this chaotically, too late and without a plan,” she said.
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Notwithstanding the obvious critique that the Tories had 14 years to get a grip on the situation – what’s most striking here is that, yet again, the Labour government seems to be borrowing Conservative clothes.
When challenged by Sir Trevor this morning, Streeting denied they were turning Tory – claiming the case for welfare reform and supporting people into work is a Labour argument.
But, from increasing defence spending and cutting the aid budget to scrapping NHS England, there’s a definite pattern emerging.
If you didn’t know a Labour administration was in charge, you might have assumed these were the policies of a Conservative government.
It’s a strategy which makes many of his own backbenchers deeply uncomfortable.
But it’s doing a good job of neutering the Tory opposition.
The new Sky News and Politico podcast Politics At Sam And Anne’s launches today, with Anne McElvoy replacing Jack Blanchard as Sam Coates’s co-host.
The political podcast will be available from 7.30am Monday to Thursday and will see Coates, Sky News’ deputy political editor, and McElvoy, Politico’s executive editor, unpack everything there is to know about the day ahead in Westminster.
Each instalment of the award-winning podcast will give audiences the latest insight into British politics in no more than 20 minutes.
The podcast originally launched in September 2023 with Jack Blanchard – Politico’s former UK editor, and now author of Politico’s DC Playbook.
McElvoy’s arrival comes after a successful year for the podcast as it was recently recognised at the inaugural Political Podcast Awards and credited for its “must-know political insight”.
Coates, who won Presenter of the Year at the 2025 Political Podcast Awards, said: “Having Anne on board as my new full-time co-host is hugely exciting.
“With her phenomenal multi-decade background in domestic and international affairs, Anne is best in class at dissecting how events around the world are shaping Westminster.
“By combining Politico’s incredible depth and Sky’s ability to cut through the noise, we are well placed to continue providing unrivalled analysis and the latest scoops to our informed Westminster audience.”
McElvoy said: “Sam’s boundless energy, deep cross-party knowledge and a shared delight in informed conversation on the topics and characters shaping politics make even our early morning recordings fun.
“Our mission remains delivering the unmissable first podcast of the day for and about Westminster. We will explore the news moments that matter, offer our own insights and spontaneous exchanges and preview events that shape our political world.”
David Rhodes, executive chairman of Sky News, said the podcast was “the go-to source for people who work in Westminster and beyond”.
He said: “It provides an unparalleled service, giving a community of highly engaged listeners the full story, first each morning on what’s happening in politics.”
A freeze to disability benefits will not go ahead following pressure from Labour backbench MPs, Sky News understands.
The government had been looking at freezing the personal independence payment (PIP) next year so it did not rise with inflation as part of a drive to cut down the ballooning welfare budget.
However, following pressure from Labour backbenchers over the past week, this has now been taken off the table, Sky News understands.
The proposal had been set to save about £5bn as Chancellor Rachel Reeves searches for savings after losing £9.9bn of fiscal headroom (the amount she could increase spending or cut taxes without breaking her fiscal rules) since the October budget due to a poor economy and geopolitical events.
PIP is a payment of up to £9,000 a year for people with long-term physical and mental health conditions and disabilities to help with extra living costs.
However, the government is expected to make qualifying for PIP more difficult when Work and Pensions Secretary Liz Kendall reveals plans on Tuesday.
More on Benefits
Related Topics:
Sky News’ deputy political editor Sam Coates, on the Politics At Sam and Anne’s podcast, said the Treasury is also expected to abolish the Work Capability Assessment, which determines whether someone is fit or not to work and to then receive disability payments.
The government has described the system as “dysfunctional” as those “not fit for work” do not receive employment support or further engagement after the assessment, which could lock them out of future work altogether.
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1:13
Will there be a backlash over benefits?
Sir Keir Starmer has made cutting the welfare budget a key project as spending on sickness benefits soared to £65bn last year – a 25% increase since the year before the COVID pandemic – and is expected to rise to £100bn before the next general election in 2029.
The number of people in England and Wales claiming either sickness or disability benefit has soared from 2.8 million to about 4 million since 2019.
However, many Labour MPs are uncomfortable with cutting benefits for disabled people.
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0:45
Streeting defends wanting to slash welfare benefits
Ms Kendall had been expected to announce welfare cut plans last week but this was delayed by displeasure from backbenchers, with the government taking the unusual step of asking all 404 Labour MPs to attend “welfare roundtables” in Downing Street last week.
Greater Manchester’s Labour mayor, Andy Burnham – a former health secretary – agreed the benefits system “needs a radical overhaul” but wrote in The Times: “I would share concerns about changing support and eligibility to benefits while leaving the current top-down system broadly in place. It would trap too many people in poverty.”
Will government follow through on tough talk despite backbench concerns?
Tomorrow, the government will publish its plans to cut the welfare budget, but it’s the Labour benches that are likely to cause the most havoc.
This mini u-turn on freezing PIP will placate some Labour MPs nervous about the unintended consequences of the welfare crackdown and how it may affect disabled people.
On Sky News Breakfast today former Shadow Chancellor John McDonnell welcomed the news, and said he understood the pressures the Treasury was facing.
His muted tone could be an indication the government’s efforts to persuade backbenchers of the merits of the plan – by inviting them to Downing Street to speak their minds and be reassured the most vulnerable would be protected – is taking effect.
However, despite a relatively understanding tone from Mr McDonnell, he also warned Reeves’s plans may turn out to create more problems than it will solve in the long run.
Mr McDonnell accused the government of not understanding the world has changed, hinting the chancellor ought to follow Germany’s lead, break her fiscal rules and blame the policy pivot on unprecedented global events.
Greater Manchester mayor Andy Burnham also attacked the government’s plans to crack down on the benefits bill, but Treasury minister Emma Reynolds launched the fightback on Sky News Breakfast, insisting the government had a duty to reform the welfare system “according to our values”.
Reynolds argued there is dignity in work and that reforms were needed as “something has gone seriously wrong under the Tories”, arguing the cuts chime with Labour ideology.
And Health Secretary Wes Streeting – the self-proclaimed Tory whisperer – has hardened his rhetoric even further, claiming the over-diagnosing of mental health problems is in part to blame for the ballooning benefits bill.
This hardening of the government’s language is a clear attempt to talk tough, but will the government be able to follow through on the action the Treasury is desperate to see while many Labour backbenchers remain unconvinced Starmer has his priorities in the right order?
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3:01
Labour faces criticism over welfare reforms
Treasury minister Emma Reynolds played down the level of discontent over plans to freeze PIP, as she told Sky News: “It is absolutely everyday business that we should have discussions with backbenchers, meetings between our MPs and ministers happen all day, every day.
“So this isn’t something that is any different, but we’re determined to strike the right balance here.”
She added there will “always be a safety net for the most vulnerable” and pointed out Labour created the welfare state in 1945, but it needs to be “more sustainable”.