Inflation does not have a big impact on the price of Bitcoin, as many believe, but a weakening US dollar will help push the cryptocurrency next to gold, according to Nydig.
“The community wants to build Bitcoin as a hedge against inflation, but unfortunately, here, the data just doesn’t strongly support that argument,” Nydig Global Head of Research Greg Cipolaro said In a note on Friday.
“Correlations with inflationary measures are neither consistent nor high,” he added. Cipolaro said that the expectations of inflation is a “better indicator” for bitcoin (BTC) but still not closely related.
Bitcoin proponents have long hailed Bitcoin as “digital gold” and a hedge against inflation due to its tightly regulated supply and being a decentralized asset. However, recently it has become more lively and relevant Traditional Finance System.
Cipolaro added real gold Not much better as an inflation hedge, because it has an inverse correlation with inflation and is inconsistent over time, which he says is “surprising for an inflation hedge.”
Weakening dollar a boon to bitcoin, gold
Cipolaro said that gold generally rose as The US dollar fellas measured against other currencies using the US Dollar Index.
“Bitcoin also has an inverse correlation with the US dollar,” he added. “While the relationship is a little less consistent and newer than gold, the trend is there.”
Cipolaro said Nydig expects Bitcoin’s inverse relationship with the dollar to strengthen as the asset becomes “more embedded in the traditional financial market ecosystem.”
Interest rates, currency provide the real mover of Bitcoin
Interest rates and the money supply are the two main macroeconomic factors that Cipolaro said affect the movement of bitcoin and gold.
Related: Worst gold plunge in years washes away $2.5T: How does Bitcoin match up?
Gold generally rises when interest rates fall and falls when interest rates rise. The same relationship, Cipolaro said, “has emerged and strengthened over time” for Bitcoin as well.
He added the relationship between International Monetary Policy And Bitcoin has been “consistently positive” and strong in recent years, with tighter monetary policies usually a boon to Bitcoin.
Cipolaro said Bitcoin’s similar price movements to gold, linked to macroeconomic conditions, show its “growing integration into the global and financial landscape.”
“If we summarize how to think about each asset from a macro factor perspective, it is that gold serves as a real-rate hedge, whereas Bitcoin has evolved into a liquidity barometer,” he added.
Magazine: 7 Reasons Why Bitcoin Mining Is A Terrible Business Idea
