If Bitcoin is an anti-inflation asset, then why does it sometimes fall?

The recent fall in the price of bitcoin contradicts one of its most important strengths, which is its resistance to inflation. Anti-inflation makes market participants think of investing in assets such as bitcoin when fiat currencies such as the dollar lose their true value; But why is bitcoin not growing now that inflation in the United States has peaked in the last 40 years?

What you read below Note By David Morris, one of the leading authors of the Quin Desk website, in which he examines the issue of bitcoin’s anti-inflation from a new angle.

Is Bitcoin really an anti-inflation asset?

Yesterday morning, the US Bureau of Labor Statistics updated its Consumer Cost Index (CPI) figures. The index shows that inflation in the United States has reached an annual rate of 6.8 percent. This is the highest annual inflation rate the United States has seen since 1982; So it’s definitely not a good thing. Among other consequences, rising inflation is one of the dire consequences of US President Joe Biden’s government bailout package, called the “Better Reconstruction Plan.”

So what will happen to the stock market, gold and bitcoin? Prices on Wall Street were already set at 6.7 percent inflation, so the Dow Jones Industrial Average has been relatively flat so far. The rise in gold prices was small but noticeable. The gold futures market has also experienced volatile but modest growth over the past six months, with rising inflation concerns.

Meanwhile, bitcoin, which has now reached relative stability, has lost more than 25 percent of its value in the last 30 days. The devaluation of bitcoin is at odds with one of its most important strengths, its anti-inflationary properties. Anti-inflation means that when Fiat currencies, such as the dollar, lose their real value, investors will devote their money to bitcoin.

So what happened? Why is bitcoin not growing now that inflation in the world’s largest economy has reached a 40-year high?

Here’s a secret that YouTube market heating influencers never tell you. The secret we are talking about is that bitcoin is anti-inflationary just a theory. This claim can be convincing and may become a reality in the future. It could even be a good reason to enter the bitcoin market right now; But this mechanism does not work at the moment.

It is certainly structurally acceptable that if bitcoin acceptance continues in this way, it will eventually happen. If companies, economies and individuals on a large scale bring large amounts of their wealth and assets into the Bitcoin market, its price will be more stable, its fixed and limited supply policy will be more attractive, and the risk of market inflation will increase. And re-experience the previous prices, it decreases.

Also read: The destruction of the world economy with government money: Ancient Roman hyperinflation and its similarity to today

This is why some people use gold, and this is exactly why bitcoin is sometimes referred to as “digital gold”. Nic Carter, investor and author of the Quin Desk website, recently pointed out that if people accepted bitcoin as gold, it would be 10 times more expensive than it is today; An acceptance that is not far off the mark.

However, we do not have such a situation now. The price of bitcoin is currently volatile for reasons that have nothing to do with inflation, and if the recent changes contain a point, they show that these factors are, by far, more powerful than the “digital gold” story.

First of all, it should be noted that the bitcoin trend has been bullish for almost two years. With a simple arithmetic and taking into account factors such as “return to average” or “higher levels of emotional appeal”, it could be concluded that bitcoin reform was inevitable. This is largely true; Because bitcoin is still a highly risky asset, investing in it has its own risks.

The fact that the total value of the Bitcoin market is close to $ 1 trillion is not due to its current acceptance; Rather, it stems from scenarios that predict that its price will rise in the future. Any risk-taking asset is vulnerable to market distrust. For example, the value of Tesla shares, which are largely tied to Ilan Mask’s inventions in the field of artificial intelligence, has fallen almost as much as bitcoin in the last 30 days.

This is related to concerns about the strength of the economy; Especially since much of this economy is outside the United States. In particular, statistics from China show that signs of recession are emerging; A recession that could have a significant impact on the world economy. The debt of companies in this country and other financial levers that lead to rising inflation, even without considering the financial leverage related to the stock prices of these companies, have reached their peak in a comprehensive manner.

As a result, it can be said that everything is a bit turbulent and this process can proceed in different directions without attracting attention. A large downturn could blow away many future-oriented assets, and some investors are trying to reduce their portfolio risk to somehow be on the safe side of the market.

The anti-inflation theory of bitcoin represents the most unpleasant truth of economics and finance; It is very difficult to prove conclusively why each incident occurred. You can almost never have a “controlled experience”; Conditions in which the displacement of a variable occurs at a specific time, and this makes it possible to examine the specific effect of that variable. The ideal condition for measuring and verifying the anti-inflation nature of bitcoin is that there is almost nothing but inflation; A situation we will never experience in the real world.

Instead, there are several variables for almost every economic or financial question; Variables that experts may not be aware of. Predicting the future depends on the appropriate variables that experts decide to focus on. In the case of Bitcoin, however, at least for now, inflation does not seem to be the market’s favorite.