Bitcoin has risen dramatically in 2021 but is highly volatile.
When the shocking October inflation numbers first flashed through to traders' screens, showing US prices were rising at the fastest rate in 31 years, bitcoin shot higher.
To many crypto fans, the token's gains confirmed what they'd long argued: Bitcoin is the new inflation hedge on the block, and it's "digital gold" for the 21st century that will soon be a key diversifier in portfolios around the world.
But that logic sustained some heavy fire in the last few days when bitcoin's price plunged 18%, from a record high of above $68,600 on November 10 to below $56,000 on Friday.
The inflation-hedge narrative "should come with some very big caveats," said James Malcolm, a top currency strategist at investment bank UBS. "It's not a robust way of thinking about things."
Although bitcoin was originally intended to be a digital version of cash, these days crypto investors are more likely to tell you that it's digital gold.
Like the precious metal, there's a limited supply of bitcoin. Only 21 million coins are supposed to ever be minted, with 18.9 million already in existence. That scarcity should help the cryptocurrency hold its value over the long run, or so the argument goes, even as other assets wobble in the face of inflation or other scary problems.
The view has picked up steam in the past few months. When bitcoin climbed in October, JPMorgan analyst Nikolaos Panigirtzoglou said in a note "the perception" that the token is an inflation hedge was a key factor. Then its price spiked when the inflation numbers came through, delighting the bitcoin-is-digital-gold crowd.
But then bitcoin reminded everyone why most major investors are steering well clear of it - it plunged.
Malcolm, the UBS strategist, said the sharp fall is a reminder there are a lot of other things driving the token. "Inflation is one of many demand-side factors," he said. "It's just a popular one at the moment."
Watch now: 4 crypto experts break down the future of digital assets and how clearer regulation will lead to mass adoption
A key problem for major institutions is that there are a large number of risks surrounding bitcoin, which an asset like gold doesn't face.
Malcolm points to regulation, arguing that it could slow down adoption sharply, which could in turn whack the price. "That should make it a very poor inflation hedge. In the sense that inflation may continue to go up, and crypto can fall a lot more, for all sorts of other reasons," he said.
Bitcoin is 'too raw'
Proponents of the digital-gold argument point out that bitcoin has risen sharply over the last year, when inflation has also climbed dramatically.
Yet skeptics argue that investors can't rely on that trend continuing. If past episodes are anything to go by, bitcoin could fall into another 2018-like "winter" at any time. Back then, its price tumbled from around $20,000 at the end of 2017 to below $4,000 a year later.
Catherine Doyle, a strategist at BNY Mellon Investment Management, said she sees bitcoin as more of "risky" asset like stocks. "It wouldn't be part of that stabilizing base [in a portfolio]," she said. "It just feels too speculative and too raw."
However, it must be said that bitcoin was only created in 2009. Even some of its biggest skeptics admit it could yet become an inflationary hedge, particularly if investors start to really believe it is. JPMorgan's Panigirtzoglou has said there's "little doubt" that bitcoin's competition with gold will continue among investors.
But in the eyes of many big players, it's nowhere near there yet. Rather, it's an asset that's been soaring for a whole host of reasons - and that could easily crash again.
Go here to read the rest:
Bitcoin was looking good as an inflation hedge then it plunged nearly 20% - Markets Insider
- How to Cash Out Bitcoin: Complete Guide - January 14th, 2022
- Bitcoin (BTC) live coin price, charts, markets & liquidity - January 14th, 2022
- Bitcoin (Cryptocurrency) TradingView - January 14th, 2022
- Bitcoin Up Official Website - January 14th, 2022
- Bitcoin Era | The Official Bitcoin Era App - January 14th, 2022
- Arkansas is offering remote tech workers $10,000 in bitcoin to move to there - CNBC - January 14th, 2022
- Kazakhstan bitcoin miner: US will make up 60% of the worlds computing power in 2 years - Yahoo Finance - January 14th, 2022
- Congress Introduces A Game-Changing Crypto Bill As The Price Of Bitcoin, Ethereum, BNB, Solana, Cardano, XRP Sinks - Forbes - January 14th, 2022
- The US Government and Bitcoin Auctions: Here's What Investors Need to Know - Motley Fool - January 14th, 2022
- Bitcoin Is A Better Store Of Value Than Real Estate - Bitcoin Magazine - January 14th, 2022
- Bitcoin could rise to $75,000 this year to top record high, bank CEO predicts - CNBC - January 14th, 2022
- Bitcoin Miners Bit Digital, Canaan, and SOS Are Flying High This Week - The Motley Fool - January 14th, 2022
- Congress Announces Hearing On Bitcoins Energy Use - Bitcoin Magazine - January 14th, 2022
- US Billionaire Bill Miller Bets 50% of His Wealth in Bitcoin - TheStreet - January 14th, 2022
- Job Postings With Terms Like 'Bitcoin' and 'Cryptocurrency' Grew Almost 400% on LinkedIn Last Year - Money - January 14th, 2022
- University accepts Bitcoin donations to fund crypto-related activities - Cointelegraph - January 14th, 2022
- The rich get richer: Rethinking Bitcoins power as an inflation hedge - TechCrunch - January 14th, 2022
- Dont mention K country: Bitcoin Magazine's YouTube restored after ban - Cointelegraph - January 14th, 2022
- Bitcoin cycle is far from over and miners are in it for the long haul: Fidelity report - Cointelegraph - January 14th, 2022
- 2 Cryptocurrencies That Have Trounced Bitcoin and Shiba Inu During the Crypto Crash - Motley Fool - January 14th, 2022
- Discussing The Importance Of Bitcoin's Open-Source Ethos - Bitcoin Magazine - January 14th, 2022
- Visa: One in Four Businesses Surveyed Plan to Accept Cryptocurrency Payments This Year Featured Bitcoin News - Bitcoin News - January 14th, 2022
- Mai Capital Predicts Tough Year for Crypto Expects Bitcoin and Ethereum to Do Well Once Regulations Come Into Focus Regulation Bitcoin News -... - January 14th, 2022
- What is Bitcoin? | How Do Bitcoin and Crypto Work? | Get ... - December 22nd, 2021
- The U.S. government has a massive, secret stockpile of bitcoin Here's what happens to it - CNBC - December 22nd, 2021
- Bitcoin has its own 1% who control outsized share of wealth - CBS News - December 22nd, 2021
- Missed out on hot crypto stocks in 2021? It paid just to buy Bitcoin and Ethereum, data shows - Cointelegraph - December 22nd, 2021
- TA: Bitcoin Gains Momentum, Why Rally Isn't Over Yet - NewsBTC - December 22nd, 2021
- How Bitcoins Sound Incentives Drive A Sound World - Bitcoin Magazine - December 22nd, 2021
- Daily Crunch: Bitcoin is religion; web3 is greed - TechCrunch - December 22nd, 2021
- Bitcoin Giveaway: Actress Gwyneth Paltrow Gives Away $500K in BTC for the Holidays Featured Bitcoin News - Bitcoin News - December 22nd, 2021
- Bitcoins Proof Of Work Is Well Worth Its Fees - Bitcoin Magazine - December 22nd, 2021
- Will Revealing Satoshi Nakamoto's Identity Help Bitcoin in 2022? - Analytics Insight - December 22nd, 2021
- Donald Trump Says Crypto Is 'Very Dangerous' Warns of 'Explosion Like We've Never Seen' Featured Bitcoin News - Bitcoin News - December 22nd, 2021
- Happy bearday, Bitcoin: Its been 3 years since BTC bottomed at $3.1K - Cointelegraph - December 22nd, 2021
- Bitcoin (BTC USD) Price Chart Risks Lapsing Into Bearish Pattern - Bloomberg - December 9th, 2021
- Bitcoin could hit $100K, gold $2K in 2022 thanks to 'deflationary forces' Bloomberg analyst - Cointelegraph - December 9th, 2021
- Jack Dorseys ditched Twitter for bitcoin. Has the social media bubble burst? - The Guardian - December 9th, 2021
- Can Bitcoin's hard cap of 21 million be changed? - Cointelegraph - December 9th, 2021
- Countries Are Leaving The USD Standard, They Need A Bitcoin Strategy - Bitcoin Magazine - December 9th, 2021
- Ethereum Might Dethrone Bitcoin as Best Crypto Store of Value, Study Argues Bitcoin News - Bitcoin News - December 9th, 2021
- Ethereum it outperforming bitcoin because its a tech bet: Novogratz - Markets Insider - December 9th, 2021
- Monster-Sized Bitcoin Whale Transfers: Blockchain Parser Catches Significant Amounts of 'Cold BTC' Moved to Active Exchanges Featured Bitcoin News -... - December 3rd, 2021
- Bitcoin.com Unlocks Earn on Crypto Promoted Bitcoin News - Bitcoin News - December 3rd, 2021
- Bitcoin And Omicron: Is Another Black Swan Brewing? - NewsBTC - December 3rd, 2021
- True or false: 91% of surveys about Bitcoin and crypto are totally wrong - Cointelegraph - December 3rd, 2021
- This simple Bitcoin options strategy lets traders profit while also hedging their bets - Cointelegraph - December 3rd, 2021
- Can Bitcoin rally in December? | Tune in now to The Market Report w/ Gareth Soloway - Cointelegraph - December 3rd, 2021
- The Invisible Incentives Of Bitcoin - Bitcoin Magazine - December 3rd, 2021
- The future is Bitcoin according to South Park creators - Cointelegraph - November 25th, 2021
- Pokmon GO Creator's AR Platform Is Now Being Used To Hunt Bitcoin, Not Pocket Monsters - Nintendo Life - November 25th, 2021
- Stripe says it's open to accepting crypto for payments, three years after ending bitcoin support - CNBC - November 25th, 2021
- Bitcoin Thanksgiving Gift, Why BTC Heads For Fresh Rally - NewsBTC - November 25th, 2021
- JPMorgan Lists Ethereum As A Better Investment Than Bitcoin - NewsBTC - November 25th, 2021
- Buy the Dip: Bitcoin Whales Accumulated Over $2.36 Billion in $BTC After Price Drop - CryptoGlobe - November 25th, 2021
- How The Latest Macroeconomic News Is Impacting Bitcoin - Bitcoin Magazine - November 25th, 2021
- Macro Guru Raoul Pal Says Millennials Migrating to Bitcoin From Gold and Traditional Finance Heres Why - The Daily Hodl - November 25th, 2021
- NFL Star Wide Receiver Odell Beckham Jr. to Be Paid in Bitcoin This Season - Motley Fool - November 25th, 2021
- Hartford Police seized $20,000 from a Bitcoin ATM after it was linked to a fraud - WFSB - November 25th, 2021
- Transacting on Solana less energy-intensive than on Bitcoin, Ethereum, report reveals - AMBCrypto News - November 25th, 2021
- Why Bitcoin Is The Best Weapon Society Has Against Inflation And Wealth Inequality - Forbes - November 22nd, 2021
- Seeing red? FUD that! Here's what you should have bought instead of Bitcoin last week - Cointelegraph - November 22nd, 2021
- IRS Expects to Seize Billions of Dollars in Cryptocurrency Next Year More Than $3.5 Billion in Crypto Seized This Year Regulation Bitcoin News -... - November 22nd, 2021
- Bitcoin Helps Poverty Rather Than Hides It - Bitcoin Magazine - November 22nd, 2021
- 69-Year Old Israeli Lady Turned a $3K Bitcoin Investment to $320K: Now the Bank Refuses to Deposit - CryptoPotato - November 22nd, 2021
- Socialite and Model Alexis Ren Doesn't Trust the Dollar Economy, Says Crypto Is a Viable Alternative Featured Bitcoin News - Bitcoin News - November 22nd, 2021
- Strong Institutional Holders Moving Into Bitcoin, According to Cathie Wood of ARK Invest - The Daily Hodl - November 22nd, 2021
- Bitcoin, Ethereum and Four Altcoins Witnessing Mass Adoption As Crypto Market Targets $200,000,000,000,000 ... - The Daily Hodl - November 22nd, 2021
- Avalanche Value Surges Reaching an All-Time High, AVAX Joins the Top Ten Crypto Markets Markets and Prices Bitcoin News - Bitcoin News - November 22nd, 2021
- Quentin Tarantino Sued for an Upcoming Auction of Pulp Fiction NFTs Bitcoin News - Bitcoin News - November 22nd, 2021
- Karnataka home minister is a mad man: Congress state chief ... - November 20th, 2021
- Tesla And Elon Musk Devotee Cathie Wood Issued A Serious Bitcoin And Ethereum Fed WarningBut Held Her Huge $500,000 Price Prediction - Forbes - November 20th, 2021
- While Speculators Believe Bitcoin's Third-Largest Wallet Is a Mystery Whale, Onchain Data Suggests It's an Exchange Featured Bitcoin News - Bitcoin... - November 20th, 2021
- Bitcoin Price Falls Almost 20% Since Biggest Cryptocurrency's Historic Record - Bloomberg - November 20th, 2021
- If bitcoin is 'digital gold,' it should be taxed like gold | TheHill - The Hill - November 20th, 2021
- Bitcoin ETFs and Corporate Adoption Are 2 Key Crypto Catalysts to Watch - Motley Fool - November 20th, 2021
- Dont think anybody can say Bitcoin is a joke now: Morgan Housel - Economic Times - November 20th, 2021
- Does the Bitcoin, Ethereum, Solana, and Cardano Price Crash Signal Another Crypto Winter? - Motley Fool - November 20th, 2021
- Shakeout Or Top? Here's What Bitcoin SOPR Says About It - NewsBTC - November 20th, 2021
- Sports Illustrated Awards Sweepstakes Sponsored by FTX to Give Away 1 Bitcoin Bitcoin News - Bitcoin News - November 20th, 2021