From turkeys to gasoline, clothes to dollar stores, nearly every avenue of human activity has been affected by inflation. Inflation rates are disrupting purchasing plans and spending.
Consumers and institutions holding devaluing currency have sought out alternatives to hedge against inflation. The U.S. Securities and Exchange Commission is embracing cryptocurrencies as an investable asset class.
Year-to-date, gold has a meager 4% return, but it has lost over 130% of its value. Increased institutional adoption, sustained appetite for digital assets, and growing exposure in the media strengthened the case of the digital asset.
These are moves that are being made by a lot of money. While the prospect of hedging against bitcoin may seem attractive to retail investors, there are still questions over its viability in offsetting financial risk for individuals.
Miscalculated expectations.
The recent discussion of inflation hedges, including the fact that the currency is susceptible to market jitters and gyrations, needs to be made clear: During December of last year, the value of the currency plummeted over 80%, by 50% in March 2020 and by another 53% in May 2021.
It is not yet known if the ability to improve user returns and reduce volatility will be possible with the use of Bitcoin. During periods of sustained high inflation, traditional hedges such as gold have demonstrated their efficacy in preserving purchasing power. The increased risk makes returns subject to the short-term swings that affect the currency.
It is too early to make a judgement on the effectiveness of bitcoin as a hedge.
Many people argue for the benefits of using a limited supply of bitcoin, which is supposed to protect it from devaluation. This makes sense in theory, but it has been shown that the price is vulnerable to external influences. The ability ofwhales to manipulate prices by selling or buying in large quantities means that the money-supply rule can't be relied on.
The regulation of Cryptocurrencies is still at the mercy of regulators and wildly varying laws. Anti-competitive laws and shortsighted regulations could affect the adoption of the underlying technology, potentially depreciating the asset's price further. It is far too early to make judgements on the effectiveness of bitcoin as a hedge.
Catering to the rich.
The trend has been driving the debate. Several wealthy individuals and corporations have adopted the currency because of its popularity.
A recent survey shows that almost 70% of U.K. financial advisers have briefed their clients about investing in cryptocurrencies, with nearly half of them believing that they could be used to make portfolios more diversified.
There has been a lot of advocacy from people like billionaire Wall Street investor Paul Tudor, Jack Dorsey, and the Winklevoss twins. Powerful companies such as Goldman Sachs and Morgan Stanley are interested in the asset.
As more and more wealthy people and institutions hold the currency, the volatility will gradually diminish. This accrual of value on the network would lead to the concentration of wealth, the antithesis of what was created for, subject to the influence of the elite and exclusive 1%.
Retail investors would be exposed to greater risk as institutional buying and selling would look like market manipulation.
The core ethos is being ignored.
The people with the most money will be the ones who end up owning most of it, as the popularity of the digital currency will lead to more people owning it.
The ethos that the white paper was based upon when it described a peer-to-peer electronic cash system is in danger of being undermined by this noticeable shift of influence toward ultra-high-net-worth individuals and firms.
Cryptocurrencies need to be permissionless and resistant to censorship and control in order to be of use.
Traditional and less influential retail investors can't afford to buy these assets in the short term as the 1% seeks a greater slice of the pie.
There is an argument to be made that this move might leave the market at the mercy of the 1%, contrary to the intended vision.
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