As the U.S. Federal Reserve’s borrowing breaks $7 trillion many people are once again questioning Bitcoin’s role as a hedge against inflation. A few days ago billionaire investor Paul Tudor Jones made headlines when he promoted Bitcoin, comparing it to gold during the 1970s.
“The best profit-maximizing strategy is to own the fastest horse,” said Jones.
“If I am forced to forecast, my bet is it will be Bitcoin.”
The recent Bitcoin halving has once again put the leading cryptocurrency in the spotlight. This is partly because following prior halvings, Bitcoin grew in value over the following months. However, this current halving happens to coincide with a global economy in decline, prompting even greater interest in digital assets. At the same time, crypto is now more accessible than ever, with many financial institutions offering easy ways for average citizens to buy Bitcoin.
The great decoupling
Since April, Bitcoin has tested the $10,000 level twice and twice been knocked back down. However, it has recovered far better than many other markets, leading some to note it’s apparent decoupling from traditional stocks. This decoupling is another factor reminiscent of gold, an asset that as long been touted as a hedge during times of economic uncertainty.
If the fed continues to print money at the current rate, borrowing could reach $10 trillion before the year-end. Some fear this could lead to ‘terminal deflation’ and another great depression. During times like these, traditional markets tend to collapse along with the global economy, and physical assets with intrinsic value that is uncorrelated with markets offer a safe haven. Now, for the first time, a digital asset may offer the same hedge.
Not so fast
Not everybody agrees though, with the Dow Jones publication Barrons saying “Don’t Think of It as a Hedge“. It’s not a particularly surprising take coming from a traditional stocks paper and appears to have little to back it up. Barrons claims that few major retailers are rushing to adopt Bitcoin but that hardly negates its use as ‘digital gold’ – retailers don’t accept gold as payment either.
Whatever you believe, historical activity suggests that Bitcoin is likely to grow in value over the coming months. As noted by the data analytics team at Skew, BTC Options Open Interest on the Chicago Mercantile Exchange (CME) is up by 900% this month. Short term volatility might still be a concern but nobody can deny that growing institutional interest is a sure sign of long-term growth.