Inflation hedge? Bitcoin jumps after US consumer price data | Crypto News

Bitcoin extended its gains after data showed US consumer prices rose at the fastest pace in nearly four decades.

by Bloomberg

Bitcoin extended gains after a report showed that US consumer prices rose at the fastest pace in nearly four decades.

The largest cryptocurrency by market capitalization has long been touted as an inflation hedge, in part due to its constant supply. Bitcoin rose 4.4% to $50,101 in New York trading on Friday. The coin has been bouncing around the $50,000 level since the sudden crash over the weekend which saw it drop as much as 21% on Saturday.

“Bitcoin is still seen as an inflation hedge, especially for younger investors,” said Matt Malley, chief market analyst at Miller Tabak + Co. . “

Cryptocurrency proponents have long argued that Bitcoin and other digital assets, as a special asset class, can act as a hedge against fluctuations in other areas of the financial market. Only 21 million bitcoins will be traded under the computer protocol that governs the issuance, although this number is not expected to be reached for several decades.

Several prominent Wall Street investors and analysts have bought into the idea of ​​using cryptocurrencies as a hedge against price increases. Veteran hedge fund manager Paul Tudor Jones has said in the past that he loves it as a store of wealth. Meanwhile, MicroStrategy’s Michael Saylor said the Fed’s easing of its inflation policy helped persuade him to invest the enterprise software maker’s money in Bitcoin.

The consumer price index rose 6.8% last month from November 2020, according to Labor Department data released Friday. Those who keep a close eye on Bitcoin’s charts note that its gains accelerated after the data was released.

However, there are plenty of counter arguments, too. Correlations may not be what they appear, according to Mark Chandler, chief market strategist at Bannockburn Global Forex. He notes that stocks also rose after the report — so the correlation may be with risky assets, he says.

Others argue that Bitcoin hasn’t been around long enough to polish an inflation hedge. Plus, according to Cam Harvey, a professor at Duke University and partner at Research Affiliates, it behaves a lot like a speculative asset and is prone to cyclical meltdowns.

“If bitcoin is ‘digital gold’ and gold is an inflation hedge, then so is bitcoin, right? Unfortunately, there is no evidence to support this, and even the correlation between inflation and gold has been weak over the years,” wrote Noel Acheson of Genesis Trading, in a report. But in the long run, gold held its value more than its value while fiat currencies declined; Bitcoin may end up doing the same.”