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Bitcoin and inflation protection: a controversial issue


Bitcoin is falling, inflation in the United States is growing at its highest rate in 13 years. Both look depressing at first glance. Although both have a relatively optimistic explanation. The head of the Fed argues that the rise in prices was caused by temporary factors. And while the recovery of all processes after the pandemic is not over, and while the effect of a low comparison base is in effect, one can agree with Powell. The fall in bitcoin also does not look catastrophic. Major players, as the data show, are accumulating positions, thanks to which the main cryptocurrency is technically trading sideways and has every chance of recovering. But if you combine these two processes, the question arises as to whether Bitcoin is really good as a defensive tool against inflation. The crypto community is divided over their correlation. According to some analysts, bitcoin allegedly failed as a hedge against inflation, as its price nearly halved from $ 64,000. For example, Ed Moya of Oanda states that the main cryptocurrency no longer behaves like a hedge of inflation, and expectations about it are exaggerated. But many industry advocates stressed that their early investments in bitcoin and the profits they made “already secured the future.” Crypto enthusiasts note that historically BTC has grown, showing huge profits in the long term. But doubts about the protective function of the main digital asset are not without foundation. Mati Greenspan, founder of wealth management firm Quantum Economics, told Cointelegraph that “there seems to be no correlation” between bitcoin’s price action and inflation or deflation data. He noted: “Of course, Bitcoin has shown great results in the past. But most of the profits from it came during the period of global deflation, when all risky assets were growing. Now that inflation is really rising, for the first time since Bitcoin, it is lagging far behind. ” However, some global investors like Paul Tudor Jones have switched to Bitcoin to protect their investments from inflation. Which one is right? Time will show. But even if there is no correlation, bitcoin has other attractions for institutions as well. At least they are still accumulating positions. But speculators do not care about the presence or absence of correlation. They need a good entry point, which may soon be formed to buy in the event of a price rebound up from the support levels of 31082.82 (red dotted line) or 28392.99. Today’s upward rebound from the level of 31082.82 already looks encouraging, but it is not a fact that the price will not go lower. – Source: InstaForex


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