Many big-ticket investors, both high net individuals and institutions, are claiming that today’s record-high inflation can be fought better by parking money in cryptocurrencies, particularly Bitcoin.
Low rates may go, inflation may stick
As of now, central banks have been maintaining liquidity. Jobs are being created in the US and Canada, and employment has reached the pre-pandemic level, thanks to near-zero policy rates by the Fed and the Bank of Canada.
But the accommodative policy stance might not last beyond a few more months. Inflation, however, cannot be curbed like quantitative easing by a simple policy maneuver of the central bank. Investors are justified in their search for avenues where investments can appreciate enough to outshine inflation.
Gold vs. crypto 2021 returns
In 2021, cryptocurrencies have performed exceedingly well, except for a few phases of downward slide. A simple set of data – price growth – corroborates this. On January 1, 2021, Bitcoin was priced at nearly US$29,000. As of now, it is hovering around US$60,000. Another major cryptocurrency, Ether, started 2021 with an under-$1000 price tag and has grown multi-fold to US$4,000 as of now.
Gold, the most preferred haven for ages, was priced at nearly US$1,900 per ounce at the beginning of 2021. Its value has anything but gained as of today. At the time of writing, gold is priced at US$1,780 per ounce.
But a comparison between price growths cannot be enough to justify the rush in cryptocurrencies. Bitcoin’s price more than doubled through just the first four months of 2021. But by mid-July, it had lost almost half its value. Another popular cryptocurrency, Dogecoin, lost more than half of its value between May and July after posting weeks of bull appreciation.
Investor interest trumps underlying volatility
A range of factors contributes to price movement in cryptocurrencies. This includes tweets by whales and the stance of regulators.
Despite the lack of fundamentals and the hyper-volatility that refuses to subside, the space is attracting investor interest. So far, gains have outshined gold, given the timing of investment in a particular crypto was opportune. Even so, the ‘gold vs. cryptos as a hedge against inflation’ debate is heavily skewed toward cryptos’ fragile and intermittent bull run, which lacks medium-to-long term predictability.
Kalkine Media’s research is purely informational in nature and aims to analyze emerging cryptocurrency trends as well as comment on underlying risks and rewards.
Contact:
Honey Bhargava
honey.bhargava@kalkine.com.au
source: Kalkine Media
