Inflation - Bitcoin as a hedge

January 04, 2022
Inflation - Bitcoin als Absicherung

It's the start of a brand new year, and Bitcoin is already racking up major predictions for 2022. President Nayib Bukele of El Salvador shared his own predictions that not only will Bitcoin reach $100,000 in the new year, but that at least two other countries will make Bitcoin legal tender will introduce, as El Salvador did just last year.

These New Year predictions follow the year-end optimism shown by Cathie Wood of Ark Invest Management and Jesse Powell, CEO of crypto exchange Kraken, with price predictions of $500,000 and $100,000 respectively to close out 2021. A shift in the market is evident as gold holdings in the foreign exchange reserves of central banks worldwide are growing significantly, while at the same time US dollar holdings have fallen sharply.

The lasting influence of 2008

A central bank shift to gold reflects global concerns about the so-called dollar-based monetary regime, particularly in emerging markets. Beginning with the 2008 market crash and following the financial crisis, both central banks and public institutions began to increase gold holdings. The crash caused an outflow of funds from U.S. Treasury securities, which subsequently led to the falling value of dollar-denominated assets. Confidence in dollar assets plummeted, according to market analyst Itsuo Toyoshima.

A hedge against inflation with a growing fan base

Inflation in the United States has reached 6.8%, the highest in 40 years, and it seems that previously anti-crypto investors have decided to get busy. Thomas Peterffy, founder of Interactive Brokers Group Inc. and valued at around $25 billion, claims that 2-3% of your portfolio in crypto assets is the way to go just in case fiat "goes to hell" .

Peterffy's firm also began offering customers the ability to trade a variety of cryptocurrencies, including Bitcoin, Ethereum, Litecoin and Bitcoin Cash. The transition is the result of increased customer requests for such an option as the company looks to add up to 10 more cryptocurrencies to this list in January 2022.

Ray Dalio, founder of Bridgewater Associates, also chimed in: "Cash, which most investors think is the safest investment, is, in my opinion, the worst investment." Dalio sees crypto investments for their potential as alternative money, saying "cash is trash" amid global developments where inflation is eroding purchasing power.

Peterffy and Dalio aren't the only billionaires scaling their crypto holdings. Hedge fund manager Paul Tudor Jones claimed it was a hedge against inflation and also bought Bitcoin in 2021.

The rise of Bitcoin City

Bitcoin’s move into mainstream acceptance is also supported by its fusion with culture. The iconic Staples Center, home of the Los Angeles Lakers and the late Kobe Bryant and thus a beacon of LA and sports culture, will be known as Arena for the next 20 years after the Singapore cryptocurrency exchange signed a deal with AEG, owner and operator of the arena.

Additionally, El Salvador became the first country to adopt Bitcoin as legal tender in 2021 under Bukele's presidency to address growing inflation. El Salvador is now planning to begin building a Bitcoin city, in addition to issuing volcano bonds, both of which are scheduled for this year.

As investors steadily move away from the dollar and toward crypto, reinforcing its reliability as a hedge against inflation, their actions also shed light on the current sentiment and status of the US dollar.


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