Bitcoin does not consistently function as a bulwark against rising prices; instead, the cryptocurrency has morphed into a gauge of market funding, notes NYDIG’s Greg Cipolaro.
A substantial effect on Bitcoin’s valuation by inflation is not observed, contrary to popular opinion, but rather a weakening US dollar is shown to boost the cryptocurrency’s price concurrently with gold, as reported by NYDIG.
“The community likes to pitch Bitcoin as an inflation hedge, but unfortunately, here, the data is just not strongly supportive of that argument,”
A recent memorandum was issued on Friday by NYDIG’s global head of research, Greg Cipolaro.
“The correlations with inflationary measures are neither consistent nor are they extremely high,”
he added.
The declaration was made by Cipolaro that, though inflationary expectations might be considered a superior gauge for Bitcoin (BTC), close correlation is still not maintained.
That Bitcoin is “digital gold” and a bulwark against inflation has been frequently lauded by proponents, owing to its rigorously fixed supply and status as a decentralized asset. However, it has lately become more deeply interwoven with and correlated to the established financial system.
Bitcoin and Gold Gain as the Dollar Weakens
That physical is not substantially superior as an inflation hedge was further noted by Cipolaro, given that an inverse correlation with inflation is exhibited by it and inconsistency across various time spans has been displayed, a fact that was characterized by him as “surprising for an inflation protection hedge.”
A statement was made by Cipolaro that gold has habitually appreciated when the US dollar has declined, a relationship gauged by the US Dollar Index against a basket of international currencies.
“Bitcoin also has an inverse correlation to the US dollar,” he added. “While the relationship is a bit less consistent and newer than gold’s, the trend is there.”
Bitcoin’s True Catalyst: Interest Rates and Liquidity
An expectation was shared by Cipolaro that Bitcoins inverse relationship with the dollar will intensify as the asset becomes more deeply interwoven within the conventional financial market ecosystem.
That interest rates and the money supply were the two primary macroeconomic factors impacting the trajectories of Bitcoin and gold was stated by Cipolaro.
An increase in value has typically been observed for gold when interest rates declined, and a decrease when rates advanced. That identical correlation, according to Cipolaro, “has both surfaced and intensified over time” for Bitcoin as well.
It was also stated by him that a persistently positive and robust correlation between global monetary policy and Bitcoin has been demonstrated across the years, with looser monetary policies customarily providing a benefit to the cryptocurrency.
A declaration was issued by Cipolaro that the comparable price trajectories of Bitcoin and gold, when weighed against macroeconomic circumstances, underscore its “deepening assimilation into the worldwide monetary and financial sphere.”
“If we were to summarize how to think about each asset from a macro factor perspective, it is that gold serves as a real-rate hedge, whereas Bitcoin has evolved into a liquidity barometer,”
he added.
