AUS
NZ
UK
CA
USA
FRA
GER
ESP
ITA
NLD
PRT
SWE
GRC
IND
POL
BRA
ZAF
RUS
CHN
UAE
Highlights
- According to data from Finbold, the US Dollar has lost up to 97.58% of its buying power relative to Bitcoin in the last five years.
- In the past two years, the number of satoshis that could be purchased with one USD fell 75.24%.
- In January 2022, the annual inflation rate in the US accelerated to 7.5%, the highest since February 1982
Since the launch of Bitcoin, its capacity as a hedge against inflation has been debated. The crypto has long been touted as “digital gold” by Bitcoin enthusiasts who believe that to protect money against inflation, people can store their money in Bitcoin, much like how people have been storing their money in gold to achieve the same purpose.
With the world coming out of a pandemic, Bitcoin’s capacity to protect purchasing power is now truly being tested. The question is: how effective is Bitcoin as a hedge against inflation?
USD loses 97% of its value vs BTC
According to data from Finbold, the US Dollar has lost up to 97.58% of its buying power relative to Bitcoin in the last five years.
The COVID-19 pandemic, which began in March 2020, saw the US dollar’s buying power take a bigger fall, which was followed by another dip at the end of 2020.
The other big factor that has seen the USD’s value fall is the government’s continuous and increasing printing of money.
Moreover, in the past two years, the number of satoshis that could be purchased with one USD has fallen 75.24%. Notably, the satoshi is the smallest unit of Bitcoin (1 Bitcoin = 100 million satoshis).
Inflation surges in the US
In October 2021, the inflation rate in the US rose to 6.5%, the highest level in three decades. In January 2022, the annual inflation rate in the US accelerated to hit a 40-year high at 7.5%, the highest since February 1982.
The accelerating rate of inflation has largely been caused by soaring energy costs, labour shortages, and supply disruptions triggered by increased demand following the reopening of the economy after lengthy lockdown periods across the US.
The energy sector has been amongst the worst hit as this segment witnessed 27% inflation in January. Within the energy sector, the oil & gas segment has been the worst hit, with gasoline prices surging 40% in January.
In the past 50 years, inflation has bitten into the US Dollar’s value by an astonishing 85%. This means that if you had US$100 in 1972, that would be worth just US$15 today.
Bitcoin as a store of value
Critics have argued against Bitcoin’s capacity to hedge against inflation, saying that the asset’s volatility makes it an unreliable store of value. Indeed, in the past year, Bitcoin has gained and lost well over US$100,000 as the number one crypto saw its value lose more than half after a reaching a record high of nearly US$69,000 in November 2021.
However, over the long term, there’s no denying that Bitcoin has provided higher returns than any traditional asset class, including property, shares and gold.
If you go back five years to February 2017, Bitcoin was valued at just under US$1,000, meaning its value has increased more than 42 times in five years.
Bottom Line
While its hard to substantiate Bitcoin’s longer-term performance, due to the fact it has only existed since 2009, one can’t overlook the fact that its performance in that time has far outweighed even record levels of inflation.
With the world going through a period of economic instability, its true potential as a store of value can be truly tested as time goes by.
