Why is inflation not inflating Bitcoin this time
Know the blockchain updates of this week:
- Bitcoin prices wavered amid historical inflation.
- Crypto is changing how fundraising works. The arena has evolved right from Kickstarter to Constitution DAO.
- Also, know the numbers. You’ll be surprised by the price of a Bored Ape NFT.
Often referred to as an inflation hedge, bitcoin is struggling during this inflation high.
The US Bureau of Labor Statistics recorded its most significant 12-month jump in Consumer Price Index (CPI) numbers since 1982 on Friday. Well, bitcoin is expected to rise in times like these, right? And it did rise around 4% after the CPI report, but it then forfeited its gains over the weekend. Moreover, after its record high of $69,000 in November, the cryptocurrency has largely trended downward while inflation surged. So is calling Bitcoin a hedge investment an exaggeration now, or is there something deeper at play?
Bitcoin’s network is hitting record highs despite the falling prices. The mining power of the coin made a full recovery after the mining crackdown of China. In the meantime, roughly 18,000 nodes are operating Bitcoin’s Lightning Network facilitating faster, cheaper BTC transactions.
The limited supply of Bitcoin is essential for it to function as a hedge against inflation. About 90% of the maximum 21 million BTC to ever exist has been mined and circulated already. As the supply of BTC increased by 4.2% with the onset of 2020, as was expected, the supply of US dollars increased by approximately 37% as the government and Federal Reserve responded to COVID with an unexpected money-printing strategy and the likes.
Compared to the US, countries like Argentina and Turkey have seen a sharper increase in money supply and a faster currency devaluation. The countries also saw Bitcoin appreciate more wildly as compared to their respective currency. Bitcoin appreciated nearly 60% against the US dollar this year, around 90% against the Argentine peso, and crossed 200% against the Turkish lira.
Why is it important?
Bitcoin has so far outperformed inflationary fiat currencies and emerged as a popular hedge for both institutional and retail investors. But it does not make Bitcoin proportional to inflation and does not mean that every time inflation hits the roof, bitcoin has to too. Crypto markets are hard to crack after all. Looking at the big picture, the Federal Reserve’s efforts to fight inflation can make the dollar stronger but reduce BTC’s relevance as an inflation hedge. As a result, some investors might go ahead and make profits by the year-end as BTC maintains its record high.