Bitcoin fails to function as an inflation hedge in 2022 despite expectations, study shows
The ongoing high inflation environment has investors looking for potential assets to act as a hedge against the downturn affecting both stocks and cryptocurrencies. In particular, crypto supporters have argued that Bitcoin (BTC) is becoming a hedge against inflation, but it seems that the first cryptocurrency has failed the test when it was most needed.
In fact, in 2022, both Bitcoin and Ethereum (ETH), the two largest cryptocurrencies by market capitalization, recorded absolute returns of 6.5% and 4.5%, respectively, on the print days of the Consumer Price Index (CPI), according to a study by Crypto comparison shared with Finbold November 3 indicates.
In particular, returns were above the annual average, indicating that the assets had failed to live up to expectations of acting as an inflation hedge.
“Bitcoin and cryptocurrencies have so far failed to act as an inflation hedge, a long-proposed narrative of native digital assets. By 2022, BTC and ETH have performed inversely to inflation and nominal interest rates,” the report said.
Bitcoins reduce volatility
Despite Bitcoin’s inability to live up to the expectation of acting as a hedge, in recent weeks the asset has shown price stability trading in the $19,000-$21,000 range, signifying a drop in volatility. In fact, Bitcoin volatility fell below the Nasdaq and S&P 500 for the first time since 2018.
Moreover, the study points out that Bitcoin’s average annual volatility was 79%, while the current average volatility is 63%.
Bitcoin accumulation spree
Furthermore, Bitcoin’s mixed performance has inspired a general market belief that the asset is likely to rise in the coming months. For now, most investors are looking for a possible price bottom, while the lows have also inspired an accumulation spree. In this line, the researchers noted that the accumulation is contrary to previous bear markets. According to the report:
“Unlike the last bear market, where all holders across different wallet sizes panic sold, in this bear market we have seen a consistent accumulation in almost all accounts. Accounts above 10,000 Bitcoins have seen an increase likely due to increased institutional adoption.”
Meanwhile, Bitcoin is trying to push past the $21,000 level. At press time, the asset was trading at $20,200 with a gain of about 1% over the past 24 hours. In particular, Bitcoin appeared to surpass $21,000 before correcting in reaction to the latest Federal Reserve rate hike.
Disclaimer: The content of this page should not be considered investment advice. Investment is speculative. When you invest, your capital is at risk.
