Over the years, inflation was above all a problem for emerging markets, in which unstable currencies and economic instability meant that rising prices were a lasting challenge. However, after the Covid-19 pandemic, inflation became a global problem. Once, stable economies with historically low inflation suddenly struggled with growing costs, which prompted investors to think about how to preserve their wealth.

While gold and real estate have long been hailed as protected assets, Bitcoin supporters claim that its constant supply and decentralized nature make it the final shield before inflation. But is the theory persist?

The answer can largely depend on where you live.

Bitcoin supporters emphasize their strict supply limit of 21 million coins as a key advantage in combating inflationary monetary policy. Unlike FIAT currencies, which central banks can print in unlimited quantities, bitcoin supply is determined in advance by the algorithm, preventing any form of artificial expansion. They argue that this deficiency makes Bitcoin similar to “digital gold” and a more reliable warehouse of values ​​than established money spent by the government.

Several companies and even sovereign nations have accepted this idea, adding Bitcoin to their treasures to protect themselves against the risk and inflation of fiduat currencies. The most noteworthy example is El Salvador, which was the global headlines in 2021, becoming the first country that accepted Bitcoin as a legal tender. Since then, the government has been constantly accumulating bitcoins, which makes it a key element of its economic strategy. Companies such as the strategy in the USA and Metaplanet in Japan followed in their footsteps, and now the United States is in the process of establishing their own strategic Bitcoin reserve.

So far, the Bitcoin investment strategy has paid

Until now, the investment strategy of corporate and governmental Bitcoin has paid off because BTC exceeded the S&P 500 and Gold Futures from the early 1920s, before inflation increased in the United States.

Recently, however, that good results have shown signs of moderation. Bitcoin remains a robust contractor in the last 12 months and although BTC profits sell consumer inflation, economists warn that earlier results are not a guarantee of future results. Indeed, some studies suggest that the correlation between cryptocurrency returns and changes in inflation expectations is far from consistency.

He returns in the last 12 months. Source: Truflation.

The role of bitcoin as inflation protection remains uncertain

Unlike established inflation hedges, such as gold, Bitcoin is still a relatively up-to-date advantage. His role as security remains uncertain, especially considering that widespread adoption has gained traction only in recent years.

Despite the high inflation in recent years, the price of Bitcoins has fluctuated wildly, often correlating with risk assets, such as technological inventory than with established inflationary hedges, such as gold.

Recent test Published in Journal of Economics and Business He stated that Bitcoin’s ability to secure inflation has weakened over time, especially as institutional adoption increased. In 2022, when inflation in the US reached a 40-year level, Bitcoin lost over 60% of its value, while gold, a established inflation hedge, remained relatively stable.

For this reason, some analysts say that the price of bitcoins can be more driven by investors’ moods and liquidity conditions than by macroeconomic bases such as inflation. When the risk appetite is robust, Bitcoin rallies. But when the markets are afraid, Bitcoin often crashes with wrestling.

IN Journal of Economics and Business The study, the authors of Harold Rodriguez and Jefferson Colombo said:

“Based on monthly data between August 2010 to January 2023, the results indicate that bitcoin returns grow significantly after a positive inflation shock confirming empirical evidence that bitcoins can act as inflationary protection.”

However, they noticed that Bitcoin’s inflation property was stronger at the beginning, when the institutional BTC reception was not so common. Both researchers agreed to “[…]Bitcoin inflation property is specific to the context and probably decreases because it achieves a wider reception and becomes more integrated with the main financial market. “

“So far it acted as an inflation protection-but it is not a black and white case. This is more cyclical (phenomenon) – said Cointelegraph Robert Walden, head of trade in Abra.

Walden said

“In order for bitcoins to be a real security of inflation, it would have to consistently overtake inflation from year to year with phrases. However, due to its parabolic nature, its performance is highly asymmetrical over time. “

Walden said that Bitcoin’s movement is now more about market positioning than inflationary protection – it is about capital flows and interest rates. “

Argentina and Türkiye are looking for a financial shelter in Crypto

In economies suffering from uncontrolled inflation and strict control of Bitcoin capital, it turned out to be a valuable tool for preserving wealth. Argentina and Türkiye, two countries with lasting inflation over the past decades, have been illustrating this vigorous well.

Argentina has long been struggling with repeated financial crises and growing inflation. While inflation has recently demonstrated signs of improvement, the locals historically turned to the cryptocurrency as a way to bypass financial restrictions and protect their wealth against currency depreciation.

A recent coin base questionnaire It was found that 87% of Argentineans believe that cryptographic technology and blockchain can escalate their financial independence, while almost three out of four respondents perceive crypto as a solution for challenges such as inflation and high transaction costs.

Related: Argentina is ahead of Brazil in cryptographic influx – chain

With a population of 45 million, Argentina has become a habitat for a cryptocurrency party, and Coinbase informs that as many as five million Argentineans employ digital assets every day.

“Economic freedom is the cornerstone of prosperity and proudly bring safe, transparent and reliable cryptographic services to Argentina,” said Fabio Plein, America director at Coinbase.

“For many Argentineans, crypto is not only an investment, it is a need to regain control over their financial futures.”

“People in Argentina do not trust peso. They are always looking for ways to store values ​​outside the local currency, “said CointeLgraph Julián Colombo, senior director of Bitsso, the main Latin American cryptocurrency exchange.

“Bitcoin and Stablecouins allow them to bypass capital controls and protect their savings from devaluation.”

In addition to individual investors, companies in Argentina also employ Bitcoin and Stablecouins to protect revenues and conduct international transactions. Some employees even decide to receive some remuneration in cryptocurrency to secure earnings against inflation.

According to the economist and cryptographic analyst, Natalia Motyl,

“Currency restrictions and capital controls imposed in recent years have made access to American dollars more and more difficult among high inflation and the crisis of trust in Argentine PESO. In this environment, cryptocurrencies appeared as a real alternative to maintaining the value of money, enabling people and companies to bypass the restrictions of the traditional financial system. ”

While Bitcoin’s effectiveness as inflation protection is still for debate, Stablecoins have become a more practical solution in high inflation economies, especially those who will be set to the American dollar.

In relation to the economic size, Türkiye appeared as a hotspot for Stablecoin transactions. In the year running until March 2024, the purchases themselves constituted 4.3% of GDP. This digital currency boom, powered by two-digit inflation-85% in 2022 and over 80%, a decrease in the lira in relation to the dollar in the last five years, gained momentum during a pandemic.

The adoption of Bitcoin Turkey proves that citizens drive adoption, not governments

Although Turkey allows its citizens to buy, hold and trade crypto, the employ of digital currencies for payment has been banned since 2021, when the Central Bank of the Republic of Turkey banned “all direct or indirect use of cryptocurrency assets in payment services and emissions of electronic money.” Nevertheless, the adoption of cryptocurrencies in Turkey is still evident, and more and more Turkish banks offer cryptographic services and shops and ATMs, providing options for exchanging cryptocurrencies.

High inflation indicators supported the erosion of the Turkish Lira value, which lost almost 60% of the purchasing power, when inflation increased to 85.5% between 2021 and 2023. This led to many Turkish citizens to Bitcoins as a warehouse of values ​​and the center of exchange.

While some say that Bitcoin deficiency is good in terms of long -term recognition, potentially ahead of consumers’ inflation, its high variability and repeated correlation with indexes related to technology related to the risk of indexes, such as NASDAQ recently, suggest that its performance as pure Hedging inflation remains mixed.

However, in inflation -powered nations, such as Argentina and Türkiye, where local currencies fell on value, “digital gold” undeniably served as a key path of escape from local currencies, maintaining purchasing power in a way that established FIAT cannot.

Although bitcoins are still a resulting resource, and its effectiveness as a security requires further research, one remains clear – so far, significantly exceeded consumer inflation. For Bitcoin enthusiasts, this is only a reason to celebrate.

This article is used for general information purposes and should not be and should not be treated as legal or investment advice. The views, thoughts and opinions expressed here are themselves and do not necessarily reflect or represent the views and opinions of Cointelegraph.