Is BTC Inflation Proof?
Is BTC Solid against Inflation?
Well, my little inquisitive love muffins, let’s find out!
What is inflation?
Inflation refers to the increase in prices of goods AND services within an economy. It is commonly referred to devaluation of the dollar.
What causes inflation? Complex question that maybe many don’t agree on but in essence;
- Excessive money printing by the Federal Government (i.e. the Venezuela crises and kind of like North America now);
- Central bank policy, regulations and laws (i.e. 1970s inflation crises)
- Availability of goods and services (i.e. currently)
- List goes on
Theoretical basis for the position that BTC is inflation proof?
I think different arguments have been advanced for this, but in general, under the law in North America (Canada and the USA), BTC and Cryptocurrency is not actually considered a currency. It is classified as a “good” (and there is a reason for this, that being TAXATION! If the Government recognized Crypto as a currency, they would not be able to legally tax you on it, so you can BET that Crypto will NEVER be considered a currency!!!). Yes, you can use Crypto to buy things, but at the end of the day, policy and regulation views Crypto as a “good” that a person “owns”. And thus, the presumption would be, if it is a good and inflation causes prices of goods to rise, then BTC should, technically, rise with the price of goods and services.
So is BTC inflation proof?
Quick answer is, not really in the way that I think people intended it to be. But so far, sort of.
Long answer, below:
What is Cryptocurrency, really? Its interesting, I was excited to write this post because in law school I had to write a legal brief on what the classification of Ethereum should be under the law in Canada (I argued a security like a stock).
And what’s interesting is Crypto in general and BTC generally behave like a stock! And particularly they behave like a growth stock. They grow with time and peoples’ interest, and continued investment of holders (or should I say HOLDERS? Is that the term?).
I recently did an analysis on BTC where I briefly compared it to SPY (S&P 500) and we saw BTC had much better growth than SPY but was behaving quite similarly to SPY. And BTC and other Cryptos have all they key makings of a stock, you can hold them on a exchange, trade them either on an exchange or through blockchain, buy, sell, short, long, hold, etc.
While, it is not IDENTICAL to a stock, the key makeup is there (at least, legally and technically). And, perhaps unfortunately or perhaps not so unfortunately, depending on your stance, BTC and Crypto has begun to follow the market almost to a T. In preparing to write this, I correlated BTC to 3 other equities, SPY (S&P 500 ETF), USO (United States Oil ETF), GLD (Gold ETF) and VNQ (Real-Estate Index ETF). I will post the raw statistical data in the image below.
In this chart, we look at the Pearson Correlation (or R value, you linear regression analysts will know this well!) to determine the strength of the relationship. And we see, BTC has a HUGELY strong POSITIVE relationship to SPY. What does that mean? It means, we can expect BTC to follow SPY fairly consistently. In fact, from this degree of a relationship, I can actually use BTC data to accurately predict SPY data (like highs, lows, ranges, etc.) without even looking at SPY data. That is how strong the relationship is!
Inversely, we see a really and NEGATIVE relationship between BTC and OIL, and that is shared between SPY and OIL, which means that Oil will do the INVERSE of SPY and BTC. SPY and BTC go up, Oil will likely go down, etc.
So what does it all mean?
Well, it means a couple of things:
- BTC behaves like a growth stock. This, in general, is neutral, it’s neither good nor bad. And I would argue its kind of good because we buy BTC with the aspiration of it “going to the moon”.
- BTC is vulnerable to market conditions. There is just no way to deny this unfortunately. The relationship BTC has wit the market is undeniable statistically and I would be feeding you lies if I said “its okay, its completely independent of the market, you will be fine”. Because, the statistics are strong and compelling here.
- That said, just because BTC follows the market, does not mean it will behave in the same way as other growth stocks. This is the area that we still don’t know for sure. As of right now, BTC is actually trading normally (you can refer to my other post), meaning that it has not sold off to a point where BTC would be considered “negative growth”. IF you look at PayPal stock, that stock has sold off into negative growth. Same with NFLX. BTC has not! It is still holding its, let’s call it “statistically expected” value based on its position as a growth “good”. Just because BTC follows SPY, does not mean that the annualized return rates and value are identical (GLD has technically outperformed SPY and it still is fairly strongly linked to SPY). It just means, the behaviour is similar. And because it currently retains its expected value, we can say that so far it has technically warded off inflation. Yes, there is some devaluation here, but this devaluation cannot be attributed to inflation alone at this point in time, because this devaluation is a “statistically expected” happening in the lifespan of BTC, whether there be inflation or not (I am trying to explain this as simply as I can haha).
- The other thing is, BTC and Crypto has a sizeable fan base and a sizeable portion of the population that may think that this will aid in holding off inflation. Thus we may see more people place larger holdings into BTC and Crypto in general during times of high inflation, which would ultimately cause the price to rise and thus, at least at face value, appear to be warding off inflation dramas.
Conclusion
So, should you buy BTC to ward off inflation?
My answer is, it depends. If you are TRULY concerned about inflation and inflation alone and you have a sizeable net worth that you want to guard against inflation and you are nearing retirement or you may need a sizeable portion of this money in the near future, then no. The answer is no. You should follow conventional recommendations of financial analysts and invest in Gold, commodities, bonds, etc. Consult with a Financial Planner for sure, but I wouldn’t recommend BTC.
Anyone else, my motto is diversification! I wouldn’t put all my eggs in one basket, but investing in BTC or Ethereum or Doge, it wouldn’t hurt. I personally have a sizeable holding in Tezos (XTZ) that I continually add to every once in a while and stake. DO I think its going to protect me against inflation? No, probably not, but that’s not the point. I believe in it, I like it, I think it has potential and if it does ward off inflation, well, great! At the end of the day, there is more chance that Tezos or BTC will increase dramatically in price than say Gold or commodities. Yes, Gold is a stable investment, but its not going to go “to the moon” anytime soon.
That's it! Thanks for reading!
These are my opinions that I have drawn from a look at math and chart based data. It is not financial advice. If you are truly concerned about inflation, I would advise speaking to a financial advisor. These markets can be difficult to navigate!
Let me know your questions/comments/critiques below!
Well, my little inquisitive love muffins, let’s find out!
What is inflation?
Inflation refers to the increase in prices of goods AND services within an economy. It is commonly referred to devaluation of the dollar.
What causes inflation? Complex question that maybe many don’t agree on but in essence;
- Excessive money printing by the Federal Government (i.e. the Venezuela crises and kind of like North America now);
- Central bank policy, regulations and laws (i.e. 1970s inflation crises)
- Availability of goods and services (i.e. currently)
- List goes on
Theoretical basis for the position that BTC is inflation proof?
I think different arguments have been advanced for this, but in general, under the law in North America (Canada and the USA), BTC and Cryptocurrency is not actually considered a currency. It is classified as a “good” (and there is a reason for this, that being TAXATION! If the Government recognized Crypto as a currency, they would not be able to legally tax you on it, so you can BET that Crypto will NEVER be considered a currency!!!). Yes, you can use Crypto to buy things, but at the end of the day, policy and regulation views Crypto as a “good” that a person “owns”. And thus, the presumption would be, if it is a good and inflation causes prices of goods to rise, then BTC should, technically, rise with the price of goods and services.
So is BTC inflation proof?
Quick answer is, not really in the way that I think people intended it to be. But so far, sort of.
Long answer, below:
What is Cryptocurrency, really? Its interesting, I was excited to write this post because in law school I had to write a legal brief on what the classification of Ethereum should be under the law in Canada (I argued a security like a stock).
And what’s interesting is Crypto in general and BTC generally behave like a stock! And particularly they behave like a growth stock. They grow with time and peoples’ interest, and continued investment of holders (or should I say HOLDERS? Is that the term?).
I recently did an analysis on BTC where I briefly compared it to SPY (S&P 500) and we saw BTC had much better growth than SPY but was behaving quite similarly to SPY. And BTC and other Cryptos have all they key makings of a stock, you can hold them on a exchange, trade them either on an exchange or through blockchain, buy, sell, short, long, hold, etc.
While, it is not IDENTICAL to a stock, the key makeup is there (at least, legally and technically). And, perhaps unfortunately or perhaps not so unfortunately, depending on your stance, BTC and Crypto has begun to follow the market almost to a T. In preparing to write this, I correlated BTC to 3 other equities, SPY (S&P 500 ETF), USO (United States Oil ETF), GLD (Gold ETF) and VNQ (Real-Estate Index ETF). I will post the raw statistical data in the image below.
In this chart, we look at the Pearson Correlation (or R value, you linear regression analysts will know this well!) to determine the strength of the relationship. And we see, BTC has a HUGELY strong POSITIVE relationship to SPY. What does that mean? It means, we can expect BTC to follow SPY fairly consistently. In fact, from this degree of a relationship, I can actually use BTC data to accurately predict SPY data (like highs, lows, ranges, etc.) without even looking at SPY data. That is how strong the relationship is!
Inversely, we see a really and NEGATIVE relationship between BTC and OIL, and that is shared between SPY and OIL, which means that Oil will do the INVERSE of SPY and BTC. SPY and BTC go up, Oil will likely go down, etc.
So what does it all mean?
Well, it means a couple of things:
- BTC behaves like a growth stock. This, in general, is neutral, it’s neither good nor bad. And I would argue its kind of good because we buy BTC with the aspiration of it “going to the moon”.
- BTC is vulnerable to market conditions. There is just no way to deny this unfortunately. The relationship BTC has wit the market is undeniable statistically and I would be feeding you lies if I said “its okay, its completely independent of the market, you will be fine”. Because, the statistics are strong and compelling here.
- That said, just because BTC follows the market, does not mean it will behave in the same way as other growth stocks. This is the area that we still don’t know for sure. As of right now, BTC is actually trading normally (you can refer to my other post), meaning that it has not sold off to a point where BTC would be considered “negative growth”. IF you look at PayPal stock, that stock has sold off into negative growth. Same with NFLX. BTC has not! It is still holding its, let’s call it “statistically expected” value based on its position as a growth “good”. Just because BTC follows SPY, does not mean that the annualized return rates and value are identical (GLD has technically outperformed SPY and it still is fairly strongly linked to SPY). It just means, the behaviour is similar. And because it currently retains its expected value, we can say that so far it has technically warded off inflation. Yes, there is some devaluation here, but this devaluation cannot be attributed to inflation alone at this point in time, because this devaluation is a “statistically expected” happening in the lifespan of BTC, whether there be inflation or not (I am trying to explain this as simply as I can haha).
- The other thing is, BTC and Crypto has a sizeable fan base and a sizeable portion of the population that may think that this will aid in holding off inflation. Thus we may see more people place larger holdings into BTC and Crypto in general during times of high inflation, which would ultimately cause the price to rise and thus, at least at face value, appear to be warding off inflation dramas.
Conclusion
So, should you buy BTC to ward off inflation?
My answer is, it depends. If you are TRULY concerned about inflation and inflation alone and you have a sizeable net worth that you want to guard against inflation and you are nearing retirement or you may need a sizeable portion of this money in the near future, then no. The answer is no. You should follow conventional recommendations of financial analysts and invest in Gold, commodities, bonds, etc. Consult with a Financial Planner for sure, but I wouldn’t recommend BTC.
Anyone else, my motto is diversification! I wouldn’t put all my eggs in one basket, but investing in BTC or Ethereum or Doge, it wouldn’t hurt. I personally have a sizeable holding in Tezos (XTZ) that I continually add to every once in a while and stake. DO I think its going to protect me against inflation? No, probably not, but that’s not the point. I believe in it, I like it, I think it has potential and if it does ward off inflation, well, great! At the end of the day, there is more chance that Tezos or BTC will increase dramatically in price than say Gold or commodities. Yes, Gold is a stable investment, but its not going to go “to the moon” anytime soon.
That's it! Thanks for reading!
These are my opinions that I have drawn from a look at math and chart based data. It is not financial advice. If you are truly concerned about inflation, I would advise speaking to a financial advisor. These markets can be difficult to navigate!
Let me know your questions/comments/critiques below!
For real-time updates and premium indicators, consider joining my group at: patreon.com/steversteves
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