Bitcoin: The New ‘Inflation Hedge’?

Since it reached its peak in August 2020, gold prices have been constantly reaching lower highs and are down over 12% despite the rise in inflationary pressures. Investors seem to have lost interest in the precious metal, which has not been very sensitive to the dynamics of inflation in the past year.

On the other hand, Bitcoin has experienced a strong co-movement with the US 5Y breakeven; the rise in inflation expectations in the past two months has been associated with a strong rally in Bitcoin prices, from $40,000 to over $60,000.

The chart below shows that Bitcoin has been a better ‘inflation-hedge’ than gold in the past year, and therefore new highs in US breakevens could support the cryptocurrency in the near term.

One strong particularity of gold though is that it has historically performed well in periods of rising political uncertainty and price volatility (which has not been the case for Bitcoin). For instance, while gold was up 3.6% in the first quarter of 2020 when US equities plummeted by 20%, bitcoin experienced a 9% drawdown.

Source: Bloomberg, RR

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