Is Bitcoin an Inflation Hedge? ... Price Plummets Despite Inflation Concerns

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Kim Suhwan] Despite growing concerns about inflation, Bitcoin prices have not been able to avoid a downward trend. As a result, the claim that Bitcoin is a hedge against inflation is gradually losing strength.

Recently, Bitcoin prices have plummeted to nearly half compared to mid-April. In particular, after soaring daily from around $7,000 at the beginning of last year to a peak of $60,000 this year, it is now falling weakly.

According to CoinDesk, as of 4 PM Korean time on the 25th, the price of Bitcoin was $34,603.

Previously, Bitcoin advocates argued that Bitcoin would be used as an inflation hedge like gold. Their basis was that Bitcoin's quantity is limited, making unlimited mining impossible.

However, amid widespread signs of inflation recently, Bitcoin prices are instead falling.

As of last month, the U.S. Consumer Price Index rose 5.4% year-over-year, marking the largest increase in 13 years. Additionally, according to the Center for Financial Stability, a U.S. think tank, inflation indices are rising in 49 countries worldwide.

Eswar Prasad, a professor at Cornell University, said, "Bitcoin price changes do not appear to be connected to macroeconomic indicators such as inflation," adding, "At present, it seems that people are not buying Bitcoin as an inflation hedge."

The reason Bitcoin cannot serve as a hedge is analyzed to be that it is more influenced by regulatory pressure from various countries than by its characteristic of limited quantity.

Professor Prasad said, "Bitcoin reacts more sensitively to regulatory measures," and "It is also influenced by tweets from celebrities. This impact is greater than that of inflation factors."

Moreover, the Wall Street Journal (WSJ) reported that factors influencing Bitcoin price fluctuations also come from investors' expectations of profitability. This means people buy Bitcoin speculating they can sell it at a higher price in the future.

In an interview with WSJ, an expert said, "Buying Bitcoin is like buying a lottery ticket," adding, "Inflation may be one of the factors affecting cryptocurrency price fluctuations, but its influence is much smaller than other factors."

There is also an interpretation that the cryptocurrency derivatives market, which is much larger than the spot trading market, is a factor affecting Bitcoin prices.

According to research from Carnegie Mellon University in the U.S., the daily average trading volume of cryptocurrency derivatives is 5 to nearly 20 times higher than that of spot trading.

In other words, changes in the derivatives market have a much greater potential to move Bitcoin prices.

Earlier in April, a $10 billion sell-off in the derivatives market in just one day also led to a sharp drop in Bitcoin prices.

Leonard Kostovetsky, a cryptocurrency expert, told WSJ, "Bitcoin could be an inflation hedge, but the clear fact is that it is not at this moment."

This content was produced with the assistance of AI translation services.