Bitcoin Fails as an Inflation Hedge? What the Current Global Situation Tells Us

Like the rest of the world, Bitcoin has felt the consequences of the war.

The current geopolitical situation is creating uncertainty for both households and markets.

The question for Bitcoin at $1 million seems to be whether it can still serve as a hedge against inflation, or whether February proved otherwise.

Geopolitics and Bitcoin

A report from QCP Capital noted that historically, the correlation between BTC and gold prices has been poor, calling into question whether the digital asset can be considered a hedge against inflation to help protect the value of investments and personal savings.

Sanctions against Russia will be felt by everyone around the world, with global oil and gas prices already surging and expected to rise further.

With the economic consequences of COVID coupled with the war, inflation has increased.

“Assets viewed as inflation hedges can be self-fulfilling; investors flock to them and they remain highly valued even though the intrinsic value may be much lower,” Investopedia explains.

As a result, gold has been the asset of choice for years as a hedge against inflation. Bitcoin has long been described as “digital gold,” but during periods of risk aversion, their low correlation means that digital assets trade more like “high-beta leveraged risk assets that are closely correlated with technology and the Nasdaq.”

Bitcoin and gold show poor correlation over time

Source: QCP Capital

However, there is more to consider as we enter a pivotal point in the history of crypto markets and blockchain technology.

The report further states that “where BTC now has a more important macro use case is in its ability to serve as the primary hedge against weekend event risk when traditional markets are closed.”

Spot and options liquidity is readily available, making it the new last resort hedge for traders who previously used the Middle East markets.

Additionally, Bitcoin has been shown to price in downside risk before any other market opens.

Additionally, NewsBTC recently reported how gold outperformed Bitcoin after Russia began its attack on Ukraine, but the digital coin has regained dominance after recovering to around $40,000 last Thursday, while gold has fallen.

While investors initially turned to gold amid geopolitical concerns, it is during these turbulent times that Bitcoin succeeds because it is more accessible, easier to move, and use as a form of money than gold .

BTC is rebounding today

During a live broadcast on Fox Business, reporter Layah Heilpern interviewed Euro Pacific Capital CEO Peter Schiff, and the stockbroker continued to slam BTC and was only bullish on gold.

For years, he has claimed that the digital asset will drop to $0 and that he “won’t hedge any risk.”

Heilpern delivered her Bitcoin thesis, slamming back that Schiff’s predictions never came to pass and that Bitcoin’s fundamental value has performed just fine during this year’s turmoil:

“You can’t trade gold peer-to-peer. Bitcoin is really an alternative monetary system.”

As Heilpern explains, you can’t make donations to Ukrainians or anyone in gold, and you can’t flee a country with gold bars.

Among the frozen bank accounts, many civilians from Ukraine and Russia have reportedly begun using BTC, as both countries have been severely affected by a war they did not start.

Furthermore, this war would only lead to higher inflation in the US, and for Bitcoin, mass adoption could completely tip the narrative in its favor.

On top of that, the price of digital coins has been surging today. Trader Sven Henrich shared his thoughts on the current Bitcoin rally and said there are four main reasons:

1. Rationale : "Adoption and acceptance continues to expand, i.e. #ebay, but also institutions. In my opinion, this path will continue. No signs of going backwards, but rather continued expansion."

2. Sentiment : “The Ukraine crisis highlights how Bitcoin can serve as a backstop mechanism to raise funds when traditional avenues of funding are cut off. Blockchain and decentralized money will become more important.”

3. Technical : “Bitcoin sets new lows against stocks in February, showing positive divergence and defense of key trend. Beginning of correlation decoupling process?”

4. Safe Trade : “Sanctioned funds may seek Bitcoin as a safe haven (unproven), which also poses risks as it provides an excuse for accelerated regulation (long-term positive/short-term risk).”

Bitcoin recovers to $43,364 on daily chart