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Anxieties of inflation dominated the market this month, and with these impending fears, investors became intrigued and perplexed about where they should park their money. Without a doubt, Bitcoin has established itself as a leading asset when it comes to the best investment option for hedging against a potential drop in the purchase power of the US dollar.
However, how can one choose the proper investment in light of Bitcoin’s volatility and the broader crypto-turmoil? market’s
Gold and other precious metals have long been advocated as a strategy to protect against inflation, particularly during some of the most recent periods of high inflation in the United States. Investors have recently turned their attention to BTC as an alternative store of value, claiming that its scarcity makes it akin to “digital gold.”
Let’s take a look at the inflation debate before we get into the nitty-gritty of the “Bitcoin vs. Gold” debate. Inflation has already reached its highest level in 13 years, according to the Consumer Price Index statistics provided at the beginning of the month, with y-o-y inflation reaching 5.4 percent. This amount was far higher than the US Federal Reserve’s long-term rate target of 2%, which it considers to be economically healthy.
Furthermore, when considering a long-term situation, the discussion over whether or not current high inflation is transitory, as Fed Chair Jerome Powell predicted, seems unimportant. Furthermore, the disparity between inflation and the 10-year treasury rate indicates that bondholders are unconcerned about their bonds’ purchasing value eroding due to inflation.
This high divergence between inflation and bond rates, however, presents an interesting scenario. Ecoinometrics, in a recent newsletter, pointed out that this divergence would mean that betting on gold and Bitcoin outperforming “seems like a good idea but for different reasons.” Talking about Bitcoin, it said,
“Bitcoin itself tends to be uncorrelated to the real yield. But a negative real yield environment created by high inflation is good for the narrative.”
When comparing Bitcoin to gold, which is all about changes in real yield, the newsletter pointed out that we’ve been in really negative real yield area since the beginning of the year. However, there has yet to be a significant rally.
When the real yield falls into negative territory, gold usually follows with a massive surge. However, with no rally in sight, a parabolic move could be on the cards.
Seeing the above trend and with Bitcoin’s price already depressed, investors might decide to bet on Bitcoin rather than gold as a store of value. According to the analyst,
“If that’s the case then it would be the first time that a Bitcoin rally is triggered by negative real yields. In reality, such a move would still qualify as an adoption play since you could see that as a transfer from gold to Bitcoin.”
However, it’s worth noting that the prevailing market attitude for the king currency has been quite pessimistic. However, this does not mean that possibilities in this market are dwindling or disappearing; in fact, several analysts have stepped forwards to describe these chaotic times as excellent purchasing opportunities.