In early May, Michael Saylor, CEO of MicroStrategy, took to Twitter again, Announce His belief in Bitcoin. “Bitcoin is the best hedge against inflation,” he tweeted, Cite evidence that bitcoin prices have risen over time since their own company bought a billion-dollar stake in digital currency in August 2020.
But Sailor’s words have been hollow in the weeks since the Bitcoin crash, along with many other aspects of the US economy.
For years, cryptocurrency advocates have touted Bitcoin as a hedge against the inflated value of fiat currencies. Historically, Bitcoin has seen popular adoption in foreign countries experiencing widespread economic instability, such as El Salvador, Lebanon and Venezuela.
But with its rise in inflation The maximum level since 1982 Everything from gas to groceries has been more expensive for decades. And as the US dollar depreciates, investment in Bitcoin has experienced a steep dropoff: for weeks, cryptocurrency has been consistently hitting $ 20,000, a plunge from its historical high of $ 68,000 just seven months ago. (It fell to $ 17,592 at one point over the weekend, its lowest level since December 2020.)
Bitcoin does not skyrocket in the current period of rising inflation, showing that despite extensive corporate investment, it still has a long way to go before it gains the attention of its top lawyers. The reality is that for the average retail investor, Bitcoin is still a highly speculative investment that offers little value in the real world.
“When inflation rises, there are other things that are changing and Bitcoin does not recover at all [this change]”It is a good idea,” said Itai Goldstein, a professor of economics and finance at the Wharton School of the University of Pennsylvania. He continued that the collapse of financial markets with inflation was “bringing down Bitcoin.”
Beyond Bitcoin, cryptocurrency is huge Affected by turbulence In recent weeks. In early June, the controversial cryptocurrency lending firm Celsius shut down $ 8 billion worth of transactions due to the company. Explained As “extreme market conditions.” The move has sparked a regulatory investigation that could lead to widespread market repression when it comes to federal regulation of cryptocurrency investing.
Uncertain financial forecasts have affected top cryptocurrency companies, many of which are bracing for the upcoming “crypto winter”. Coinbase and Gemini both laid off employees with Coinbase CEO Brian Armstrong in mid-June Writing in a blog post “Economic conditions are changing so fast” that it looks like an imminent recession that could turn into another crypto winter.
This protective position has had a major chilling effect on the cryptocurrency market, but serves as an indication that bitcoin is subject to bear and bull market rules.
Bitcoin is often compared to gold because it can be produced in limited quantities, but in reality it has more Closely paralleled Performance of Tech Stocks. (In fact, it is gold Outperforming Bitcoin in terms of dollar investments in the last year.)
Goldstein said the money taken from the financial market would have a big impact on Bitcoin. “A lot of things that keep financial markets going are helping cryptocurrencies,” he said. “People speculate on cryptocurrencies, and these same people are speculating on stocks. When the mood changes, they are becoming more pessimistic.
Today, bitcoin still serves as a high-risk investment, especially in times of economic turmoil. More than any other fiat currency, Bitcoin depends critically on investor sentiment for its value: the more people trust and buy it, the higher the price and vice versa.
Since its value is inseparably linked to investor sentiment, it is still a poor inflation hedge, especially in times of economic turmoil. Unstable economic prospects mean fewer people are less inclined to throw their savings into risky investments, while those same investments may one day face a rapidly rising fiat currency.
Zoë Bernard is a writer and reporter covering technology based in Los Angeles. Previously, he was involved with Business Insider and Technology for Information. You can find her on Twitter @zoesaintbernard.