Bitcoin is not an inflation hedge

16 December 2021 Internet, IT & e-Discovery Blog Blog
Authors: Peter Vogel

Coinbase.com reported that “You might expect Bitcoin — which was designed to be resistant to inflation — to rise on news of the highest inflation metrics in four decades, but after jumping around 4% in the hours after the CPI report, Bitcoin forfeited its gains over the weekend.”  The December 14, 2021 article entitled “If Bitcoin is an inflation hedge, why are prices struggling?” these comments:

Despite lagging prices, Bitcoin’s network is hitting all-time highs by a variety of other metrics. Bitcoin’s mining power has fully recovered since falling sharply after China’s midyear mining crackdown (The U.S. and Kazakhstan are now top mining destinations).

Meanwhile, a record number of global computers (roughly 18,000 “nodes”) are operating Bitcoin’s Lightning Network, which enables faster, cheaper BTC transactions.

Bitcoin’s limited supply is key to its potential as a hedge against inflation. Around 90% of the maximum 21 million BTC that will ever exist has already been mined and circulated.

And while the supply of BTC has increased, as expected, by 4.2% since the beginning of 2020, the supply of U.S. dollars has increased by nearly 37% (around $6 trillion new dollars) as the government and Federal Reserve responded to COVID with an unprecedented “money-printing” strategy and other stimulus measures.

I’m sure no one is surprised by this Bitcoin inflation report!

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