Can Bitcoin Still Hedge Against Inflation? Global Market Stress Test Casts Doubt

Key Takeaways

• Bitcoin’s store-of-value potential debated: Skeptics question its stability after the market crash.
• Analysts see long-term growth for Bitcoin and recommend diversification with gold.
• Bitcoin rebounds after volatility; experts discuss challenges to becoming a safe haven.

Bitcoin has often been compared to gold and real estate as a potential store of value, crucial for hedging against inflation.

 A true store of value maintains its purchasing power and can be easily exchanged for other assets. However, the stress test on Aug. 5 has questioned Bitcoin’s role as a ‘safe-haven’ asset.

Volatility and Growth Potential in BTC/Gold Ratio Analysis

Gold is up 17.39% this year, while Bitcoin has outperformed with a 35% gain. Despite the recent market slump, which reduced Bitcoin’s year-to-date gains from 77%, its dominance remains significant.

Bitcoin closed out 2023 with a 153% gain, far outpacing gold, which recorded a modest 13% increase.

Experienced trader Peter Brandt recently spotlighted this rivalry between Bitcoin and gold as competing hedges against inflation. 

In analyzing the BTC/Gold ratio, Brandt emphasized the importance of adaptability in interpreting market trends.

He notes that while the current ratio stands at 26, even a drop to 16 would not undermine Bitcoin’s long-term positive trajectory. This illustrates Bitcoin’s price volatility compared to the relative stability of gold.

Brandt’s analysis also suggests the BTC/Gold ratio could experience significant swings, potentially dropping in the short term but possibly soaring to 150 or beyond as per long-term projections. 

This indicates Bitcoin’s potential to be a robust store of wealth, with considerable growth prospects compared to gold. However, Brandt advises a diversified investment strategy that includes both Bitcoin and gold to manage risk and volatility.

Bitcoin’s Maturity Challenges in Achieving Safe Haven Status

However, Nik Bhatia, founder of The Bitcoin Layer, had a more contrarian view than Brandt. 

Bhatia argued that Bitcoin, at 15 years old, was still too young to be classified as a safe haven asset. He pointed out that Bitcoin is often perceived as risky due to its brief history compared to traditional assets. 

The Bitcoin Layer founder also noted that while Bitcoin’s price movements generally align with the stock market, there have been instances of significant divergence, demonstrating its potential as a hedge against inflationary pressures from expansive monetary and fiscal policies.

Despite these instances, Bhatia observes that Bitcoin often behaves like a risk-on asset. Its recent significant drop alongside global stocks highlights its ongoing maturity challenges in establishing itself as a safe haven.

Bitcoin and Ether Recover From Sharp Losses Amid Market Volatility and ETF Flows

On Aug. 6, Bitcoin and Ether rebounded from sharp declines experienced the previous day. 

The reigning crypto king climbed back over $56,000, while Ether increased by up to 4.6%, surpassing $2,500. This recovery followed a severe drop on Aug. 5, where Bitcoin fell below $50,000, and Ether recorded its most significant drop since 2021.

Monday’s volatility was the first time the crypto ETF complex was put to a stress test. Despite the prevailing storm, some ETFs even posted positive gains. Ethereum ETFs, in particular, closed out Monday with net inflows.