U.S Inflation At 40 Year High; Bitcoin Championed As Better Hedge

Inflation in the United States has reached almost 7% for the first time in over 40 years. The Consumer Price Index (CPI) that in November inflation touched 6.8%. The United States government is working to implement steps to manage the economic impacts. 

Reason For Current Inflation Rise

The major cause of the rise in inflation is that governments globally have failed to taper the currency supply. The Coronavirus pandemic has further increased their reluctance to do so. The pandemic has led many governments to launch many welfarist programs requiring more money printing.

The first wave of the pandemic naturally led to a dip in many financial markets, including the cryptocurrency market. For the emerging cryptocurrency markets, however, the dip did not last long. The cryptocurrency instead ended up growing at a phenomenal rate. Bitcoin at the moment seems to have pushed past gold to become the preferred choice for Corporate and retail investors in shielding themselves from inflation.

Many quarters believe that the pandemic was instrumental in getting Bitcoin on the radar of many institutional investors at the beginning of the year. A new COVID mutation termed Omicron is inspiring panic in the financial markets. Financial analysts warn it could be another quarter filled with uncertainty for the financial markets.

The Bitcoin Versus Gold Debate

Financial analysts think that the rising inflation will lead to a crash in many markets, the nascent crypto market included. The analysis, however, differs from the view of some crypto experts. Cryptocurrency experts believe that the crypto market will make new highs in Q1 of next year. They believe that this bullish move will follow the bearishness being experienced in December.

The release of the CPI information yesterday saw a dip in many financial markets. The cryptocurrency market, however, showed resilience, making some gains. Bitcoin added over $2,000 in value, while Ethereum added about $200. The cryptocurrencies have since lost some of those gains. 

Many Bitcoin supporters believe that the limited supply makes it just as good, if not a better store of value than gold. Bitcoin, however, remains plagued by regulatory and volatility concerns. The high volatility leaves investors open to heavy losses, and as such many looking to protect their capital against inflation might hesitate to put their money there.

Volatility for Gold in 3 months is less than 15%, peaking at 22% just before the summer of this year. On the other hand, the 3-month volatility of Bitcoin is near 60%, reaching an all-time high of over 100% in 2018. Pundits at UBS citing the numbers maintain that Bitcoin is not as practical an inflation hedge as gold. They also add that gold remains faster at recovering from market drawdown. They believe it remains an investment option for investors with a high-risk appetite alone.

The Managing Director of Global Market Strategy at JP Morgan, Nikolaos Panigirtzoglou, revealed that high volatility doesn’t detract from Bitcoin’s potential as an inflation hedge. He added Gold also had high volatility in the late 70s and 80s. That said, he still advises that it is something that investors should also factor in.