Does Bitcoin protect against inflation?

One of the most bullish signs for Bitcoin this week was the fact that hedge fund mogul Paul Tudor Jones announced to his clients that he would be investing a part of their moneys into the most famous of all cryptocurrencies.

According to Mr Tudor Jones, who has quite the reputation on Wall Street, he does this to hedge against inflation. He even, according to Bloomberg, compared it to the gold trade in the 1970s.

There seems to indeed be a growing reasoning among seasoned market money managers that Bitcoin could indeed serve as an effective hedge against a potential rise in inflation as fiat currencies are now being printed at the speed of light.

Stimulus program

In fact, the US Fed’s balance sheet has been expanded by trillions of dollars every week now as it’s chairman, Mr Jay Powell, agreed with President Trump’s government that this was the best solution to help the millions of newly unemployed in the US.

In a very short timespan of just two months, 33 million citizens in the US have lost their jobs and thus the stimulus programs aimed at mitigating the economic damage caused by the coronavirus pandemic are very welcome indeed. However, this also means that the value of the US dollar is being watered down.

Fixed supply

On the other hand, whilst the Bank of England, the Federal Reserve and the European Central Bank just need to turn on their printers to foresee an unlimited amount of money for various fiscal and monetary policies, there is a limit as to how many Bitcoins there are in the world.

Thanks to the white paper as written by Satoshi Nakamoto, we know that the supply of bitcoin is fixed at 21 million coins exactly. Currently, estimations are that some 18 million of those 21 million total coins have been mined already.

Just as physical gold therefore, the value of Bitcoin is indeed a hedge against inflation as it grows ever more scarce over time. Fiat currencies on the other hand, because of their design, are drawn to inflation.


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