Inflation is on the rise, so why isn’t the price of bitcoin?

In early May, MicroStrategy CEO Michael Sayler once again took to Twitter, Proclaim His trust in bitcoin. “Bitcoin is the best hedge against inflation,” he tweeted, Citing evidence that the price of bitcoin has risen over time since his own company bought a $1 billion stake in the digital currency in August 2020,

But in the weeks since then, Sayler’s words have turned hollow, as bitcoin has crashed along with many other aspects of the US economy.

For years, cryptocurrency advocates have touted bitcoin as a hedge against the rising value of fiat currencies. Historically, bitcoin has also seen popular adoption in foreign countries experiencing macroeconomic instability such as El Salvador, Lebanon and Venezuela.

But with the rise in inflation Highest level since 1982 Everything from gas to groceries is more expensive than it has been in decades. And as the value of the US dollar has plummeted, investments in bitcoin have taken a beating: For weeks, the cryptocurrency has been consistently hovering around $20,000, a high drop from its all-time high of $68,000 just seven months ago. . (It fell to $17,592 at one point over the weekend, the lowest point since December 2020.)

Bitcoin is not rising during the current period of rising inflation, indicating that it still has a long way to go before it catches the eye of its top advocates, despite widespread institutional investment. The reality is that, for the average retail investor, bitcoin is still a highly speculative investment that offers little value in the real world.

“When inflation rises, other things are changing too, and bitcoin is not resilient to everyone” [this change]Itay Goldstein, professor of economics and finance at the Wharton School of the University of Pennsylvania. Coupled with inflation is the collapse of financial markets that is “bringing down bitcoin as well,” he continued.

Beyond Bitcoin, Cryptocurrency Has Been Massive troubled by turmoil in recent weeks. In early June, controversial cryptocurrency lending firm Celsius blocked an $8 billion transaction due to the company. described As in “extreme market conditions”. The move has sparked a regulatory scrutiny that could lead to a downturn in the broader market when it comes to federal regulation regarding cryptocurrency investments.

Uncertain economic forecasts have affected top crypto companies, many of which are gearing up for the upcoming “crypto winter”. Coinbase and Gemini both laid off employees in mid-June with Coinbase CEO Brian Armstrong writing a blog post That “the economic situation is changing rapidly” appears to be an imminent recession, which could turn into another crypto winter.

Not only has this defensive position had a massive impact on the cryptocurrency market, but it also serves as a signal that bitcoin is subject to bear and bull market rules.

Bitcoin is often compared to gold because it can be produced in limited quantities, but in reality, it has more. closely parallel The performance of tech stocks (indeed, gold has been to perform better Bitcoin in terms of dollar investments over the past year.)

Goldstein said that money withdrawn from financial markets has a major impact on bitcoin. “A lot of the things that were keeping the financial markets up, were also helping cryptocurrencies,” he said. “People put money into cryptocurrencies as speculative, and these are the same people who speculate on stocks. When the mood changes, they are becoming more pessimistic.”

Today, bitcoin still acts like a high-risk investment, especially in times of economic turmoil. Compared to any other fiat currency, bitcoin depends significantly on investor sentiment for its value: the more people trust and buy it, the higher the price, and vice versa.

Because its value is so inextricably linked to investor sentiment, it is still a poor inflation hedge, especially during periods of economic turmoil. A volatile economic future means fewer people are less willing to dump their savings into riskier investments, even if those same investments may someday counter the rapidly rising fiat currency.

Zoë Bernard is a writer covering technology and reporter based in Los Angeles. In the past, he covered Technology for Business Insider and Information. You can find him on Twitter @zoesaintbernard.

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