Bitcoin (BTC) has long been described as “digital gold” and, like gold, was seen as a hedge against inflation.
However, new data from digital asset management company NYDIG reveals that this narrative does not fully reflect the truth.
In NYDIG's weekly report, Greg Cipolaro, the firm's Global Research Director, analyzed the factors influencing Bitcoin prices. Cipolaro found that the relationship between Bitcoin and inflation is both inconsistent and weak.
“The community likes to describe Bitcoin as an inflation hedge, but unfortunately the data does not strongly support this view,” Cipolaro said, adding that “correlations with inflation indicators are neither consistent nor high.”
The situation is no different for gold. Traditionally seen as an inflation shelter, gold's correlation with inflation has occasionally been negative. “It's surprising to see an inverse correlation between gold and inflation indicators,” Cipolaro said.
According to the NYDIG report, the primary drivers of Bitcoin and gold price movements are real interest rates and the global money supply. Gold typically appreciates when inflation-adjusted real interest rates fall. Bitcoin has begun to exhibit similar behavior as its integration with the financial system increases.
Cipolaro stated that Bitcoin's inverse relationship with real interest rates has strengthened in recent years, and that this is a result of BTC's greater integration with the global financial system.
According to NYDIG, investors should now view Bitcoin as a liquidity indicator rather than an “inflation hedge.”
*This is not investment advice.
