Is Bitcoin A Reliable Inflation Hedge? Experts Are Divided

Experts have conflicting opinions on whether Bitcoin BTC/USD can serve as a reliable safeguard against inflation. The debate arises from Bitcoin’s volatile track record as a supposed inflation hedge.

According to a report by Wall Street Journal, Zach Pandl, managing director of research for digital-currency asset manager Grayscale Investments, argues that Bitcoin’s scarcity makes it valuable. Similar to gold, another traditional inflation hedge, Bitcoin is limited in supply, with only 21 million bitcoins that can be mined. The currency’s scarcity is guaranteed, unlike gold, whose total quantity is unknown. Pandl believes that Bitcoin is better suited as an inflation hedge due to its digital nature and portability.

"Bitcoin will continue to capture market share from gold as an inflation-hedging asset better suited for our globalized and digitized age," he added.

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However, Eswar Prasad, professor of trade policy at Cornell University, disagrees. Prasad claims that Bitcoin’s value stems solely from its scarcity.

He notes that, unlike gold, which has intrinsic value for industrial and jewelry usage, Bitcoin is largely used for speculative transactions. Prasad points out that Bitcoin’s high price volatility and unreliable technology make it a risky bet as an inflation hedge.

“Rather, much like other risky assets, its prices seem to be influenced by macro factors, such as policy interest rates and liquidity conditions. But it is subject to much larger speculative swings in prices than many traditional asset classes,” Prasad shared.

The debate continues on whether Bitcoin is a reliable inflation hedge or merely a speculative vehicle. However, it is undeniable that Bitcoin’s volatility has led to mixed results for investors.

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