The situation in Ukraine makes many people worry about the Third World War. This is understandable and natural. When investors are scared, they start buying safe assets to protect themselves. Notably, Bitcoin does not seem to be one of them.
what, what pops up every time as an association with the narrative “Bitcoin is digital gold”
year must:
- react to inflation news in the same way that gold does;
Spoiler: by and large, it does nothing of the sort.
This lack of behavior similar to gold is regarded by bitcoin skeptics and people , owning other assets that can be sold, as a fatal flaw that dooms Bitcoin to failure.
You see, trading in a certain way on inflation data or geopolitical events is not an inherent property of an asset. This is a property of the narrative around this asset.
Right now, the narrative of Bitcoin as digital gold is not particularly strong. This is what its price behavior tells us.
But the design of the Bitcoin network hasn’t changed. Still no single point of failure. This is still unacceptable. Its monetary policy is still hardwired into the code.
Which is why, while the digital gold narrative is a little looser these days, there is no reason for it to suffer failure in the long run.
However, one thing I want to point out in particular is Peter Schiff and others’ assertion that Bitcoin is not a good hedge against inflation.
I’ve said this before, don’t judge an asset as a good hedge against inflation by how it reacts to inflation news. It just doesn’t matter. Inflation is a slow process that destroys the purchasing power of cash. What happens in one day doesn’t matter.
The only thing that matters is whether the use of cash to buy Bitcoin now will outpace inflation 1 year from now, 2 years, 4 years, 8 years, because that’s the definition of what an inflation hedge is.
So how does gold act as an inflation hedge? Well, we can do the following:
- Take the US CPI data and the price of gold at the end of each month. Let’s check if gold outperformed the consumer price index for the reporting period of 1 year, 2 years, 4 years and 8 years.
- If gold outperformed the consumer price index – for that month the checkmark is blue. Otherwise, it is red.
If you do this for every month starting from 1499 of the year, the picture will look something like this.
If we consider the longest period of 8 years, there are long periods of time when gold is good a hedge against inflation, and other times when it doesn’t do much.
Honestly, gold does well when you want it. th, no problem. Financial crisis 2022 of the year, everything is in order. The COVID crisis is not so bad either. At least if you have a long enough time horizon, gold is indeed a hedge against inflation.
As you can see, the shorter the lookback period, the more heterogeneous the records. But then again, when you’re looking for an inflation hedge, you’re looking at a multi-year period, so it shouldn’t be anything special.
What about Bitcoin? We can apply the same methodology and get the following results.
That’s right, the color is mostly blue, which means that in its short life, Bitcoin (despite the fact that it trades more like a risky asset ) was a good hedge against inflation.
But of course Bitcoin doesn’t have as long a history as gold, so when it comes to the future we can just try to reason by analogy :
- If the digital gold narrative takes hold again, Bitcoin will most likely will trade like gold. Thus, based on the history of gold in -s, we can hope that bitcoin continues to be a good inflationary hedge. other reasons. The narrative of a parallel currency emerging as an alternative to a central bank-dominated system may have some advantages, especially as central banks are about to start implementing CBDCs (Central Bank Digital Currency). In this case, we can expect another parabolic phase, which is likely to surpass inflation. Finally, Bitcoin can remain fully risky asset. What then?
For the last option, we can compare Bitcoin with a benchmark in terms of risky assets , i.e. with the stock market.
- disclaim responsibility for any investment advice that may be contained in this article. All judgments expressed express exclusively the personal opinions of the author and the respondents. Any actions related to investments and trading in the crypto markets are associated with the risk of losing the invested funds. Based on the data provided, you make investment decisions carefully, responsibly and at your own peril and risk.
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The same analysis we did for gold gives the following result for the S&P. Take a look.
If you look at years, we really should be worried. Any money you would invest in the stock market is roughly between the middle -x and middle -s, were would be below inflation if you held the position for 8 years.
If that tells us anything, it is that we can expect the stock market/ risky assets will not perform as well during periods of rising inflation when the Fed is in the process of raising rates. years.
Accumulation Trend
Based on the latest on-chain data, bitcoin’s accumulation trend is rather sluggish. There is no big news here. The participation rate has been in the lower part of its range for some time.
Yes, the whales have bought the drawdowns. Yes, small investors constantly accumulated positions. But this impulse is not enough to lead to anything.
What is interesting is that for the first time almost a year of addresses controlling from 1 to , have exceeded their level since the beginning of the bull market in the fall 2020 of the year.
But can they keep up this trend? Not entirely clear.
Hodling TrendsTem At the same time, our favorite whale-small investor divergence signal is displayed in blue. This means that whales are distributing coins while small investors are accumulating. This pattern has not affected much the price of bitcoin over the past year.
DivergenceIf nothing new comes up, I’m afraid we’ll see bitcoin and S&P drawdown patterns08 will move side by side for a while.
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