Opinion | Wonking Out: Wasn’t Bitcoin Supposed to Be a Hedge Against Inflation?

There’s a financial joke, whose origin I don’t know, that has been making the rounds lately. It goes like this: If inflation continues at current rates, the purchasing power of wealth held in dollars will be cut in half over the next eight years. But cryptocurrencies can beat that: They can lose half their value in just a few months.

Haha. But crypto enthusiasts have indeed marketed their products as an inflation hedge. Coinbase, the biggest United States crypto exchange, declares that cryptocurrencies are appealing because “they’re more resistant to inflation than fiat currencies like the U.S. dollar.” This is, not incidentally, the same argument people used to make for holding gold.

But a funny thing happened as fears of inflation grew, as seen in this chart showing Bitcoin’s price in U.S. dollars over the past year:

So why have crypto prices crashed at exactly the moment inflation has taken off? To some extent it may be a coincidence: If you believe, as I do, that crypto is to a large extent a Ponzi scheme, this may just happen to be the moment when the scheme has run out of new suckers.

But there’s also a more fundamental issue: People who touted cryptocurrencies…

Read more at www.nytimes.com

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