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.
He was sentenced to 10 weeks behind bars after he pleaded guilty to the assault by beating of 45-year-old Paul Fellows in Frodsham, Cheshire, in the early hours of 26 October.
He announced his resignation as MP for Runcorn and Helsby in a social media post on Monday, describing the assault as a “deeply regrettable incident” for which he had “rightly been punished”.
“I am sincerely sorry to Paul Fellows, my family, colleagues and constituents,” he added.
A by-election will now be triggered in Runcorn and Helsby, where constituents will vote to elect a new MP.
Image: Mike Amesbury leaving Chester Crown Court in February. Pic: PA
By-election a ‘big test’ for PM
It will be the first by-election since Sir Keir Starmer became prime minister, in what Sky News’ political correspondent Liz Bates said would be a “big test” in a seat where Reform UK came second last year.
“Losing it would be an unmitigated disaster given the 14,000 majority achieved last time round,” said Bates.
Amesbury came first in Runcorn and Helsby with 22,358 votes at the 2024 general election – equating to 52.9% of the electorate.
Reform UK came in second with 7,662 votes (18.1%) and the Tories in third with 6,756 votes (16%).
Reform has yet to announce a candidate, but Karen Shore, the deputy leader of Cheshire West and Chester Council, will run for Labour.
The Conservatives have opted for Sean Houlston, a membership services manager for the National Federation of Builders.
Image: Sir Keir Starmer’s government has been polling very badly indeed. Pic: PA
When will the by-election be?
Under parliamentary procedure, an MP cannot simply resign but must be disqualified from holding their seat.
To do this, they must apply for a role in the paid office of the Crown, meaning they automatically lose their seat because working for the Crown is not seen as impartial.
Titles include the crown steward and bailiff of the Chiltern Hundreds and the Crown Steward and Bailiff of the Manor of Northstead.
Rachel Reeves has now appointed Amesbury to be steward and bailiff of the Three Hundreds of Chiltern, meaning the parliamentary seat is officially vacant.
Once he does, the chief whip will put forward a motion to Lindsay Hoyle, the Commons speaker, to officially begin the process of disqualifying the MP – known as “moving the writ”.
The Speaker then puts the motion to MPs for a vote. If they agree, the writ passes through the Commons and ends up with the returning officer in the local constituency who oversees the by-election.
The writ is typically issued within three months of the MP resigning from their seat and in doing so, the date of the by-election is fixed.
It could potentially coincide with the local elections in May.
The welfare state will be there for those who need it “now and for years to come”, the work and pensions secretary has said – as the government faces pressure from its own MPs over benefit changes.
Liz Kendall acknowledged there has been “lots of speculation” about the government’s plans to reform welfare, which are due to be announced on Tuesday following a delay because of concerns from Labour backbenchers.
Speaking in the House of Commons, Ms Kendall said she wanted to assure the public the announcements will “ensure there is trust and fairness in the social security system” – and that it will remain in place for those who need it.
Ministers had wanted to stop PIP (a payment of up to £9,000 a year for people with long-term physical and mental health conditions, and disabilities) rising with inflation as part of a drive to cut the welfare budget.
The proposal had been set to save about £5bn, as Chancellor Rachel Reeves searches for savings.
She has lost £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.
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Will there be a backlash over benefits?
What’s the government’s case?
The government is expected to make qualifying for PIP more difficult when Ms Kendall reveals her plans on Tuesday.
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.
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 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 gone from 2.8 million to about four million since 2019.
Ms Kendall also revealed in the Commons the number of young people not working because of mental health conditions has risen by more than 25% in the last year, with the number considered “economically inactive” now reaching 270,000.
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0:45
‘1,000 people every day signing on to PIP benefits’
Unhappy Labour MPs
Ms Kendall had been expected to announce welfare cut plans last week.
But due to the scale of the backlash, the government took the unusual step of asking all 404 Labour MPs to attend “welfare roundtables” in Downing Street last week.
Sky News’ political correspondent Amanda Akasssaid Ms Kendall’s Commons appearance offered no real answers to the “serious concerns” raised by MPs, though social security minister Stephen Timms insisted they would “welcome” many of the changes when they are announced.
Treasury minister Emma Reynolds earlier played down the level of discontent over plans to freeze PIP, telling Sky News the roundtables were nothing more than “everyday business”.
She pointed out Labour created the welfare state in 1945, but said it needs to be “more sustainable”.
A “significant number” of countries will provide troops to a Ukraine peacekeeping force, Sir Keir Starmer’s spokesman said.
On Saturday, leaders from 26 Western countries – plus two EU leaders and NATO’s secretary general – gathered for a virtual call of the “coalition of the willing”, hosted by Sir Keir after Volodymyr Zelenskyy accepted a 30-day interim ceasefire agreement.
The prime minister said military chiefs would meet this Thursday to discuss the next “operational phase” in protecting Ukraine as part of a peacekeeping force – if a deal can be agreed with Russia.
Speaking on Monday, Sir Keir’s spokesman said they now expect “more than 30” countries to be involved in the coalition – but did not reveal which other countries had joined since Saturday.
He added: “The contribution capabilities will vary, but this will be a significant force, with a significant number of countries providing troops and a larger group contributing in other ways.”
The spokesman did not say which countries agreed to be part of a peacekeeping force, which Sir Keir and French leader Emmanuel Macron have confirmed the UK and France will be part of.
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What could a peacekeeping force actually do?
Could troops end up fighting?
Russia has repeatedly said it would not accept soldiers from NATO countries being stationed in Ukraine.
Asked if British troops fired on by Russia in Ukraine would be allowed to fire back, the spokesman said: “It’s worth remembering that Russia didn’t ask Ukraine when it deployed troops.
“We’ve got operational planning meetings that they are going through.”
The spokesman also said he did not know if the US – notably absent from the coalition – will be joining the military chiefs’ meeting on Thursday, but said the UK is having “regular discussions with our American counterparts”.
Both the UK and France are pushing for the US to provide security guarantees to prevent Russia from reneging on any peace deal with Ukraine.
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2:28
Which nations will join peacekeeping efforts?
Trump and Putin to hold talks
Last week, Russian President Vladimir Putin said he supports the truce brokered by the US in Saudi Arabia, but “lots of questions” remain over the proposals.
Donald Trump said on Sunday night he will speak to Mr Putin on Tuesday about ending the war and negotiators have already discussed “dividing up certain assets”, including land and power plants.
He said a “lot of work” had been done over the weekend on a peace deal.
The leaders involved in Saturday’s call were from: Australia, Belgium, Bulgaria, Canada, Czech Republic, Denmark, Finland, France, Germany, Greece, Iceland, Italy, Latvia, Lithuania, Luxembourg, Netherlands, New Zealand, Norway, Poland, Portugal, Romania, Spain, Sweden, Turkey, Ukraine, and the UK.
NATO Secretary General Mark Rutte, EU Commission President Ursula von der Leyen and EU Council President Antonio Costa also joined.