Bitcoin is still the best global inflation hedge

Jupiter Zheng is a Partner Liquid Fund of HashKey Capital.

The narrative that is used whenever Bitcoin drops in value is the same every time: Bitcoin fails as a hedge to inflation. Bitcoin, in the minds of critics isn’t the best way to hedge against inflation. “digital gold” It is not what so many people claim.

Gold’s recent highs has made these critics more vocal. Why isn’t Bitcoin also rising as investors search for safety if Bitcoin is an inflation-hedging hedge?

Even in today’s bearish, high-inflation environment, the cardinal truth holds: Bitcoin is an inflation hedge — arguably the most important one for long-term capital preservation the world has seen. 

The power of scarcity

Bitcoin’s hard limit is 21 million coins. The full distribution of bitcoins should be completed by the year 2140. Gold, which historically has been used as a hedge against inflation, is mirrored by bitcoin’s built-in scarcity. Bitcoin outperformed the gold in multiple periods. For example, during COVID-19, when markets around the world were overflowing with liquidity.

Bitcoin is an inflation hedge that works over time, but not in the short term. They focus primarily on volatility in the short term and overlook broader trends. Bitcoins have been consistently used to store value in extended periods of currency printing.

Bitcoin isn’t controlled by any politician or central bank. It’s a decentralized, peer-to-peer system governed by math and consensus — not by election cycles or political pressure. Bitcoin is a stable and decentralized alternative to currencies that have been destroyed by governments in places such as Zimbabwe or Venezuela. Bitcoin gains strength when faith in the traditional system is weakened. 

Consensus beats centralization

Bitcoin’s value isn’t just in its price — it’s in its design. Bitcoin regulations are advanced in the US, EU and UAE. Singapore, Hong Kong and Singapore also have them.

Inflation is an inconvenience in wealthier countries — rising grocery bills and pricier eggs. In economies in crisis, inflation may signal a financial and political collapse. Bitcoin can be a viable solution. It’s not theoretical anymore — it’s happening in real life.

Bitcoin allowed citizens in Greece to avoid capital controls. Bitcoin has become a survival tool in Venezuela and Argentina when national currencies have lost most or all of their value. The people used Bitcoin to protect their wealth, gain access to global markets, as well as transacting on decentralized platforms.

Recent: Bitcoin may rival gold as inflation hedge over next decade — Adam Back

Bitcoin’s ability to resist censorship and be borderless is crucial. The decision-making power of the institution is not a factor. This means it’s safe from geopolitical and economic pressures, as well as debt monetization. Bitcoin is based on consensus and not commands. 

The consensus matters the most when institutions are not trusted. This immutability is a characteristic that investors are undervaluing — and may not appreciate until they need it the most. 

The power of portability

Bitcoin’s resilience also matters in developed markets — especially when traditional systems fail. Banks may collapse. Stock markets can collapse. Payment processors may go offline. Bitcoin doesn’t sleep. It is active 24/7, every day of the year.

Bitcoin’s price soared 23% during the collapse of Silicon Valley Bank in March 2023 as investors looked for safety outside of the traditional banking systems. Bitcoins’ availability and its independence were its advantages.

If a bank fails, like Lehman Brothers did in 2008 for example, the consumer can be unable to access their money for many months and even years. Bitcoin, held in self-custody, remains in your control — as long as you have the private keys. There is no need for a third-party.

Payment networks like Visa or SWIFT can also become chokepoints — and targets for hackers who want to disrupt the global payments infrastructure. Bitcoin does not suffer from such bottlenecks. It is verified by miners and not the banks. Although congestion may slow down transactions, new scaling solutions have been developed to increase speed and reduce costs.

Bitcoin’s digital character makes it particularly valuable in times of crisis, capital controls or inflation. It’s hard to seize, devalue, or freeze — giving individuals more autonomy than traditional financial systems allow.

A term that is more precise: speculative Hedge  

Bitcoin, based on these features, is unmistakably an inflation hedge. We need to find a new term that describes Bitcoin’s role as the foundation of our future financial system.

A more precise term might be speculative hedge — it offers long-term protection thanks to scarcity, consensus and decentralization. 

Bitcoin’s adoption rate and volatility in price are two obstacles that still stand between it and gold becoming a global inflation hedge. There are still encouraging signs. Companies like Strategy, GameStop, Block and MassMutual have added Bitcoin to their balance sheets as a treasury strategy — with some estimates pointing to one in four companies in the S&P 500 following suit by 2030. Governments are becoming more aware of the importance of sustainability. exploring Bitcoin reserves.

Bitcoin can be a good hedge against inflation, currency devaluation and systemic instability. This isn’t a panacea. The effectiveness of the system depends on its user, access to internet, and context. If connectivity disappears entirely — say, during a nuclear war — there will be bigger problems than inflation.

The best way to think about Bitcoin is as an alternative financial safety net. Not perfect. You have to work hard at it. This is a way to prepare for the unknowns of life. You’ll be glad you have one when your ship sinks.

Jupiter Zheng, Partner Liquid Fund HashKey Capital.