Fears of inflation sent the price of bitcoin soaring to above £51.5K in early Wednesday trading, breaking high records set on Nov. 8, 2021. The monthly Consumer Price Index report from the United States Department of Labor fuelled inflationary fears, with bitcoin rising by £1,865.
Inflation is an increase in the cost of a broad range of goods and services across multiple sectors that households buy. Food, petrol, and housing prices, among other things, have risen faster than experts predicted in recent months. Prices increased by 6.2% in October compared to the same month previous year, the highest annual increase in three decades. According to Nigel Green, CEO of financial consultant deVere Group, stimulus packages and other money-printing operations devalue the currency. Bitcoin has a significant advantage over fiat currency in that it has a finite number of 21 million coins that become increasingly difficult to mine and are protected against depreciation due to government over-distribution.
During the pandemic, both institutional and ordinary investors have turned to cryptocurrency as an inflation hedge. Gold has traditionally been used as a hedge against inflation, but according to Duke University’s Cam Harvey, it is not immune to short-term volatility. The primary goal of an inflation hedge is to protect money’s buying power, but the hedging asset is also intended to provide returns. It remains to be seen if the people who are buying bitcoin on the speculative market are using it as an inflation hedge or for short-term gains.
The value of bitcoin has grown exponentially in the last 12 years. From August to October this year, bitcoin was on a tear, as the crypto world awaited the first bitcoin futures ETF. Bitcoin reached £49.2K when billionaire Paul Tudor Jones stated in late October 2021 that he believes crypto is a superior inflation hedge than gold.