Is Bitcoin a hedge against inflation?

Putting money into value investments like gold, real estate, stocks, and cryptocurrencies help curb inflation.

As cash loses purchasing power over time, holding cash causes people to lose their savings. This has led people to put their money into value investments like gold, real estate, stocks, and now, crypto. Will Bitcoin protect against inflation? It’s been a question in town ever since.

To be held as a store of value, an asset must be able to maintain its purchasing power over time. In other words, it should increase in value or at least remain stable. The key properties associated with such assets are scarcity, accessibility and durability.

Gold as a hedge against inflation

During recent inflationary periods, gold has had a mixed record. In the 1980s, there were times when holding gold gave owners negative returns.

Morningstar data gives A look at how gold has had a mixed record during recent inflationary periods. A commodity that is supposed to protect against inflation is expected to rise when consumer prices rise. During periods of high inflation, particularly in the 1980s, there were times when gold owners ended up getting negative returns.

In recent times, gold has slowly lost its shine as a cover. During the pandemic and even when the waves have subsided, people show less interest in gold. It is still considered good enough to hold value in the long term, but in the short term, the metal is considered less reliable now.

Real estate as a hedge against inflation

The bursting of the US housing bubble underscored that real estate could not always be relied upon as a hedge against inflation.

For a long time, real estate has been considered as a effective hedge against inflation. This myth, however, was shattered in the US housing bubble. In March 2007, sales and prices of homes in the country suffered a sharp drop. As data from the National Association of Realtors (NAR) reveals, sales fallen 13% to 482,000 from the peak of 554,000 in March 2006.

In the United States and around the world, real estate prices are closely related to factors such as government policy, the country’s political and economic stability, local demographics and economy, geographic location, and infrastructure, among others. The parameters are simply too many for a normal person to understand.

Stocks as a hedge against inflation

Long-term investment in stocks helps to overcome the effects of inflation. Just make sure the company has solid fundamentals.

Some actions help protect the value of your investment. Even if these stocks take a hit from impatient short-term investors, they fare well over time. But you should keep in mind that not all stocks do well to hedge inflation. You need to find companies that have strong fundamentals and are more likely to earn better dividends for their shareholders.

A common thread: Linking gold, real estate and shares to centralized entities

Traditional asset classes are controlled by centralized authorities, making them vulnerable to bias and pressure.

The value proposition of all conventional asset classes is invariably linked to the policies of centralized authorities, such as governments or federal banks. An asset so intrinsically associated with a system that asset holders cannot interfere with is not really reliable coverage, as centralized authority exerts one-button control over procedures.