In the year 2021, the price of the digital currency has risen dramatically.
A man is seen in the picture
When the shocking October inflation numbers first flashed through to traders' screens, showing US prices were rising at the fastest rate in 31 years, the price of bitcoin shot higher.
The token's gains confirmed what many fans of the coin had been saying for a long time: that it is the new inflation hedge on the block, and that it will soon be a key diversifier in portfolios around the world.
The logic was under fire in the last few days when the price of the digital currency plummeted from a record high of $68,600 on November 10 to below $56,000 on Friday.
James Malcolm, a top currency strategist at investment bank UBS, said that the inflation-hedge narrative should come with some very big caveats. It's not a robust way of thinking.
Digital gold.
Nowadays, investors are more likely to tell you that it's digital gold than it is to tell you that it's a digital version of cash.
There is a limited supply of the digital currency. Only 21 million coins are supposed to be created, with 18.9 million already in existence. The argument is that scarcity should help the criptocurrency hold its value over the long run, even as other assets wobble in the face of inflation or other scary problems.
In the past few months, the view has picked up steam. The perception that the token is an inflation hedge was a key factor in the rise of the digital currency. When the inflation numbers came through, the crowd was overjoyed.
Many drivers.
The plunge of bitcoin reminded everyone why most major investors are steering clear of it.
The sharp fall is a reminder that there are other things driving the token. He said that inflation is one of many demand-side factors. It's a popular one.
4 experts discuss the future of digital assets and how regulation will lead to mass adoption.
There are a lot of risks surrounding bitcoin, which is a problem for major institutions.
Malcolm believes that regulation could slow down adoption and cause the price to go up. It should be a poor inflation hedge. He said that inflation may continue to go up, and that it can fall a lot more.
It is too raw.
Proponents of the digital-gold argument point out that the price of gold has gone up while inflation has gone down.
Skeptics argue that investors can't rely on that trend continuing. If the past episodes are to be believed, it could fall into another winter at any time. At the end of last year, it was around $20,000, but it fell to below $4,000 a year later.
BNY Mellon Investment Management's strategist, Catherine Doyle, said she sees the asset as riskier than stocks. She said that it wouldn't be part of the stabilizing base. It feels too speculative and raw.
It must be said that the creation of the virtual currency was in 2009. If investors start to believe it is, it could become an inflationary hedge. Panigirtzoglou said there's little doubt that the competition will continue among investors.
It's nowhere near there yet according to many big players. It's an asset that's been soaring for a lot of reasons, and that could easily crash again.
Business Insider has an original article.
