Help me understand this apparent contradiction between bitcoin and inflation

[legiteum]

You always hear the pundits saying that the rise of inflation suppresses the price of risk assets such as stocks and bitcoin, as interest rates are pushed up in an attempt to control inflation.

But if bitcoin is a hedge against inflation then shouldn't the bitcoin price rise when inflation goes up instead of going down?
I'm guessing the answer would be that inflation causes bitcoin price to go down in the short term, but in the long term causes it to go up? If so then why?

Okay, it's time to get real for a moment.

US inflation peaked at about 9% annually during the post-pandemic economic disruption, and is now down to something like 4%.

Bitcoin has fluctuated by about 300% in the last two years.

Bitcoin is a "hedge against inflation" in the same was that betting on horses is a "hedge against inflation". This might be true in some narrow context, but not in the way people generally use that terminology.

When the dust settles, anywhere you put your money is an 'investment' which includes US dollars, Bitcoin, cryptos, land, gold, shares of AAPL, baseball cards, or anything else you think people might find more valuable in the future than they do now.

[348Judah]

You always hear the pundits saying that the rise of inflation suppresses the price of risk assets such as stocks and bitcoin, as interest rates are pushed up in an attempt to control inflation.

It doesn't work like that in a decentralized digital network like bitcoin, inflation is an entirely different thing and doesn't affect the way bitcoin operated in its decentralized way.

But if bitcoin is a hedge against inflation then shouldn't the bitcoin price rise when inflation goes up instead of going down?

this is by our mere ordinary saying with mouth, which is obviously far from the way it works, there are different as bitcoin is inflation proof and there's not how we can compare the two together.

I'm guessing the answer would be that inflation causes bitcoin price to go down in the short term, but in the long term causes it to go up? If so then why?

but what if not, the reverse is the case for them both.

[uneng]

But if bitcoin is a hedge against inflation then shouldn't the bitcoin price rise when inflation goes up instead of going down?
I'm guessing the answer would be that inflation causes bitcoin price to go down in the short term, but in the long term causes it to go up? If so then why?

Well, it's a well known fact Bitcoin adoption increases in determined regions where inflation is out of control. We have already seen it in Venezuela, Nigeria and more recently in Argentina. However, such markets don't have potential to leverage Bitcoin's price too much, so we don't see a big difference in BTC price. There are other major events happening in the world which can influence BTC's price much more than adoption in high inflated countries.

Another situation is what we have seen in the USA during the bearish crypto market, when interest rates were being raised in order to try controlling inflation. It had a negative impact on crypto market, as investors took their funds out from crypto to invest in other niches through traditional markets.

The reading I make of this, is that even when the financial situation of a country looks pretty bad, there are always people profiting from it somehow. Where some see a problem, others see an opportunity. If big players spot a profitable alternative outside crypto industry, they don't mind dumping it to the bottom in order to take advantage of something else. And once the alternative they went for isn't that profitable anymore, they just bring their funds back to crypto and pump it again. For these people who really impact the market with their orders, it's mainly about seeing inflation as an opportunity to speculate and make extra profit.

[bobbybkk]

But if bitcoin is a hedge against inflation then shouldn't the bitcoin price rise when inflation goes up instead of going down?
I'm guessing the answer would be that inflation causes bitcoin price to go down in the short term, but in the long term causes it to go up? If so then why?

Well, it's a well known fact Bitcoin adoption increases in determined regions where inflation is out of control. We have already seen it in Venezuela, Nigeria and more recently in Argentina. However, such markets don't have potential to leverage Bitcoin's price too much, so we don't see a big difference in BTC price. There are other major events happening in the world which can influence BTC's price much more than adoption in high inflated countries.

Another situation is what we have seen in the USA during the bearish crypto market, when interest rates were being raised in order to try controlling inflation. It had a negative impact on crypto market, as investors took their funds out from crypto to invest in other niches through traditional markets.

The reading I make of this, is that even when the financial situation of a country looks pretty bad, there are always people profiting from it somehow. Where some see a problem, others see an opportunity. If big players spot a profitable alternative outside crypto industry, they don't mind dumping it to the bottom in order to take advantage of something else. And once the alternative they went for isn't that profitable anymore, they just bring their funds back to crypto and pump it again. For these people who really impact the market with their orders, it's mainly about seeing inflation as an opportunity to speculate and make extra profit.

That is basicly the job description for a lot of people working in the financial industry

[muncuss]

As someone already said, it is not inflation that cause the price to go down but it is market demand. Bitcoin as now still used by few percentage of population, and mostly as speculative asset. Other asset like gold doesnt experience many crash because it is already used by more people and more use than just speculative asset so they bring more stability to the price

[kennyliang23]

Think of Bitcoin kind of like digital gold. People buy gold to protect against inflation, right? It keeps its value when regular money might lose it. Some folks see Bitcoin the same way - a shield against inflation because there's only so much of it and no one controls it. But here's the catch - Bitcoin's price jumps around a lot more than gold. So while it could be good against inflation, its rollercoaster prices make it a bit of a wild card.

[bobbybkk]

Think of Bitcoin kind of like digital gold. People buy gold to protect against inflation, right? It keeps its value when regular money might lose it. Some folks see Bitcoin the same way - a shield against inflation because there's only so much of it and no one controls it. But here's the catch - Bitcoin's price jumps around a lot more than gold. So while it could be good against inflation, its rollercoaster prices make it a bit of a wild card.

The problem with Bitcoin is really the extreme nature of price swings. If you invest 1 Million USD in Bitcoin now  to buy a house in 5 years time, you have no idea what the price of Bitcoin will be in 5 Years in USD maybe double what you paid or maybe only half of it..... If you really need cash in USD at a specific point in time, Bitcoin can cause you some issues..

[demonica]

You always hear the pundits saying that the rise of inflation suppresses the price of risk assets such as stocks and bitcoin, as interest rates are pushed up in an attempt to control inflation.

But if bitcoin is a hedge against inflation then shouldn't the bitcoin price rise when inflation goes up instead of going down?
I'm guessing the answer would be that inflation causes bitcoin price to go down in the short term, but in the long term causes it to go up? If so then why?

That's the thing. Bitcoin is highly volatile, and it just usually decline during the start of inflation because we can't stop people from panicking during the early stage of inflation. There are people panicking, selling Bitcoin because they need to use it to buy their essential goods. And because of inflation, people tend to hoard goods that can last for a month or longer. When you buy that, you need more fund for big purchases. That's why some tend to sell what they are holding. And that's the reason why at some point Bitcoin can be affected by inflation. But after the panicking stage, you would see changes in the price since people have already adjusted.

[wxa7115]

You always hear the pundits saying that the rise of inflation suppresses the price of risk assets such as stocks and bitcoin, as interest rates are pushed up in an attempt to control inflation.

But if bitcoin is a hedge against inflation then shouldn't the bitcoin price rise when inflation goes up instead of going down?
I'm guessing the answer would be that inflation causes bitcoin price to go down in the short term, but in the long term causes it to go up? If so then why?

No asset follows inflation perfectly, look at real estate, real estate is an asset that historically follows inflation, but like any other asset it has its own dynamics and it can move independently from it.

Bitcoin is the same, during the pandemic the inflation all over the world grew, and while bitcoin at the beginning went down in price, eventually it recovered and even now is way above its price before the pandemic, so I would say that even if bitcoin is not a perfect hedge against inflation, it does a good enough job if you ask me.

[davis196]

You always hear the pundits saying that the rise of inflation suppresses the price of risk assets such as stocks and bitcoin, as interest rates are pushed up in an attempt to control inflation.

But if bitcoin is a hedge against inflation then shouldn't the bitcoin price rise when inflation goes up instead of going down?
I'm guessing the answer would be that inflation causes bitcoin price to go down in the short term, but in the long term causes it to go up? If so then why?

Nope, inflation doesn't suppress the prices of risk assets. The attempts to fight inflation(interest rate hikes) are what suppresses the prices of risk assets. Inflation means having excessive amounts of fiat money in circulation, which causes the prices of everything to go up. Certain
assets like Gold, Real Estate and probably Bitcoin are being viewed as a "inflation-protection" assets, because they preserve their value in times of inflation. This means that their value/price does up with the same ratio as the level of inflation. In the short term, the Bitcoin price determined by the demand for Bitcoins, not by the overall inflation levels.

[hd49728]

Nope, inflation doesn't suppress the prices of risk assets. The attempts to fight inflation(interest rate hikes) are what suppresses the prices of risk assets. Inflation means having excessive amounts of fiat money in circulation, which causes the prices of everything to go up. Certain
assets like Gold, Real Estate and probably Bitcoin are being viewed as a "inflation-protection" assets, because they preserve their value in times of inflation. This means that their value/price does up with the same ratio as the level of inflation. In the short term, the Bitcoin price determined by the demand for Bitcoins, not by the overall inflation levels.

Money flow is key for growth of any market and we witnessed its importance during Covid-19 pandemic. It was expected to cause serious problems on global markets but because of massive QEs from FED and many central banks, massive money flows created and all markets skyrocketed months after appearance of pandemic. It went oppositely to all early anticipation but it can be explained by money flow.

Inflation was created during pandemic but it helped to increase money flow in all markets. People felt more easily and comfortably to spend their money, they invested and contributed to make many markets soared in two years.

[justdimin]

also something to consider is the "Timeline" of the Bitcoin market. If we zoom in on any
day or week the chances are there will be a short term trend downwards but if we
zoom out its plain to see that the Bitcoin market is on an upward trajectory.

Why? because of what franky1 posted, Bitcoins 4 year cycle and the built in halving
of the supply every 4 years. This alone is a contributing factor to Bitcoins deflation and
is the opposite to what governments do to try and control inflation - print more and more FIAT.

That is the thing that makes it very confusing for many people, because bull run is shorter whereas bear run is longer. We have seen 2021 as a peak, that's true and saw 68k on October 2021, that was the last peak. Do you know how long the increase took? I mean we are still not above ATH so we are still not at peak, and that means the last peak was about 5-6 months, and the bear run was for 2+ years, that alone is proof enough that many people see only the bad side.

However, if you see how much it increases, you will see that it is not that bad and it is doing fine. I just hope that we are going to end up with something that will end up with a lot better result, it has to be something that needs to be considered longer to handle.

[Alpha Marine]

Bitcoin is a hedge against inflation in the sense that, no matter how the value of a particular currency drops and your savings in fiat lose value, your savings in Bitcoin will not lose its value. Even if it loses its value, it will rise back up.

Inflation in a single country may not necessarily affect Bitcoin Price because Bitcoin is a global currency while that country's currency only affects that currency. Whatever is affecting Bitcoin significantly has to affect the global economy or a lot of players in the Bitcoin community.

If you save your money in a flat for two years, the value will drop because the value of the currency will depreciate. The reverse may be the case with Bitcoin.

[Assface16678]

I think there are no significance or relationships between bitcoin and inflation. Inflation is an event where the prices of anything that can be brought are getting higher and higher, so the cost of living is also getting higher or more expensive. While bitcoin is a digital or decentralised currency wherein its price is based on how many people invest in it or how many people do trades a day, you see the price drops and ups depending on the current situation. In past events or days, the price of bitcoin suddenly dropped, but not too deeply. But this is a common happening in bitcoin. Right now, the price of bitcoin got into 43k, which means it goes up. In summary, the price of bitcoin can't be affected by how high or low inflation is in a country. As long as bitcoin has investors and has demand, the price will keep on increasing.

[Nothingtodo]

You always hear the pundits saying that the rise of inflation suppresses the price of risk assets such as stocks and bitcoin, as interest rates are pushed up in an attempt to control inflation.

But if bitcoin is a hedge against inflation then shouldn't the bitcoin price rise when inflation goes up instead of going down?
I'm guessing the answer would be that inflation causes bitcoin price to go down in the short term, but in the long term causes it to go up? If so then why?

Inflation and Bitcoin are two completely opposite things. Inflation is a central issue and is controlled by a third party. Inflation occurs when supply is increased along with supply. Here it does not depend whether the price rises in the market or not but only if both demand and supply become uncontrolled then inflation occurs. But inflation in the case of BitcoinThere is no chance of that happening because it is a decentralized currency and its control system is not over any third party who can influence supply and demand. The total supply of Bitcoin is 21 million. In this case, no matter how much we increase the demand for Bitcoin, there is no way to increase the supply, so there is no possibility of inflation in the case of Bitcoin.

[Apocollapse]

Inflation and Bitcoin are two completely opposite things. Inflation is a central issue and is controlled by a third party. Inflation occurs when supply is increased along with supply. Here it does not depend whether the price rises in the market or not but only if both demand and supply become uncontrolled then inflation occurs. But inflation in the case of BitcoinThere is no chance of that happening because it is a decentralized currency and its control system is not over any third party who can influence supply and demand. The total supply of Bitcoin is 21 million. In this case, no matter how much we increase the demand for Bitcoin, there is no way to increase the supply, so there is no possibility of inflation in the case of Bitcoin.

Technically Bitcoin is inflationary because the miners mines Bitcoin and it make the circulation supply increased, it's no longer inflationary if the circulation supply capped to 21 Million. The difference is, money has no rule to print out new money while Bitcoin has a rule and everyone can know how many Bitcoin will be mined for every four years.

But, theoretically the Bitcoin's maximum supply could be changed, as long as majority developers accept the proposals.

[LastKiss]

You always hear the pundits saying that the rise of inflation suppresses the price of risk assets such as stocks and bitcoin, as interest rates are pushed up in an attempt to control inflation.

But if bitcoin is a hedge against inflation then shouldn't the bitcoin price rise when inflation goes up instead of going down?
I'm guessing the answer would be that inflation causes bitcoin price to go down in the short term, but in the long term causes it to go up? If so then why?

Well, the one that makes stocks and Bitcoin prices go down because The FED raising interest rates will make investors interested in changing their risk asset to traditional currency to enjoy the interest rate. No wonder risk assets and Bitcoin will go down but not for the long term, It's normal because when the price goes down lots of people will buy at the low price from the assets eventually it will make the price go up little by little after the interest rate cut more whales will be entering the market again. 

[tottong]

You always hear the pundits saying that the rise of inflation suppresses the price of risk assets such as stocks and bitcoin, as interest rates are pushed up in an attempt to control inflation.

Even though in theory it is true, every now and then you need to see how Bitcoin was when Corona happened and there you will determine how Bitcoin can create a different narrative from existing theories.

But if bitcoin is a hedge against inflation then shouldn't the bitcoin price rise when inflation goes up instead of going down?
I'm guessing the answer would be that inflation causes bitcoin price to go down in the short term, but in the long term causes it to go up? If so then why?

This is not like seeing the hedging process that many people mean for bitcoin there are definitely times when the market plays a role in rising and falling prices.
Of course, this is short-term performance and almost all products traded will experience the impact of inflation and not just bitcoin. But in bitcoin we see a real recovery process after the market performance becomes worse and people judge the hedging due to bitcoin's strength in self-defense.

[thecodebear]

The main point is that Bitcoin volatility is still much higher than any fiat inflation, so there can be no short term inflation-hedge feature of Bitcoin yet. The whims of the market vastly override even the 9% US inflation from a year ago. 9% on an annual basis is nothing compared to even the monthly volatility of Bitcoin, sometimes the weekly volatility of Bitcoin!


Right now Bitcoin is a long-term inflation hedge. This is specifically because it has a capped supply while inflationary currencies of course do not. And really, until Bitcoin is a very mature asset, perhaps a few decades from now, it's not going to be a short term inflation-hedge. Volatility of Bitcoin being an emerging global currency and savings/investment asset is going to be far higher than any fiat inflation (other than in hyperinflationary currencies). Only once Bitcoin is a more boring investment, with huge 4 year bull/bear markets gone, with everyone accepting Bitcoin as a normal currency, and therefore Bitcoin volaility will be a tiny fraction of what it is today, will it possibly be able to be used as a shorter-term inflation hedge. Until then, it's just a very quickly growing volatile asset whose own internal market pressures are much larger than the pressure of any fiat inflation can be.

[sokani]

But if bitcoin is a hedge against inflation then shouldn't the bitcoin price rise when inflation goes up instead of going down?
I'm guessing the answer would be that inflation causes bitcoin price to go down in the short term, but in the long term causes it to go up? If so then why?

I'm going to try and explain it this way. Imagine 10 years ago you had $5,000 and you decided to save in a bank. Based on inflation rate today, the 5k will not have enough purchasing power because commodities are on the high side. But if you'd bought Bitcoin with 5k in 2014 at $1000, you'd have 5 BTC which in today's market value should be around $235,000. So bitcoin is seen to be an edge over inflation in long term because as the price of commodities are increasing, the price of Bitcoin is also increasing.