Bitcoin fails to act as inflation hedge in 2022 despite expectations, study shows

Bitcoin fails to act as inflation hedge in 2022 despite expectations, study shows

The ongoing high inflationary environment has left investors looking for possible assets to act as a hedge considering the downturn affecting both stocks and cryptocurrencies. Notably, crypto proponents have maintained that Bitcoin (BTC) is in line to become a hedge against inflation, but it seems the maiden cryptocurrency has failed the test when most needed. 

Indeed, in 2022, both Bitcoin and Ethereum (ETH), the two largest cryptocurrencies by market capitalization, recorded absolute returns of 6.5% and 4.5% on Consumer Price Index (CPI) print days, respectively, as per a study by CryptoCompare shared with Finbold on November 3 indicates

Notably, the returns were above the yearly average, indicating that the assets had failed to live up to the expectation of acting as an inflation hedge. 

“Bitcoin and cryptocurrencies have so far failed to act as an inflation hedge, a long-proposed narrative by digital asset natives. In 2022, BTC and ETH have performed inversely to inflation and nominal interest rates,” the report said. 

Bitcoin, Ethereum vs inflation chart. Source: CryptoCompare

Bitcoins dropping volatility  

Despite Bitcoin’s inability to live up to the expectation of acting as a hedge, the asset has, in recent weeks, exhibited price stability trading in the range of $19,000-$21,000, translating to a drop in volatility. In fact, Bitcoin volatility dropped below the Nasdaq and S&P 500 for first time since 2018.

Moreover, the study points out that Bitcoin’s average annualized volatility was 79%, while the current average volatility stands at 63%.

Bitcoin accumulation spree

Furthermore, Bitcoin’s mixed performance has inspired a general market belief that the asset will likely rally in the coming months. Currently, most investors are looking for a possible price bottom, while the lows have also inspired an accumulation of spree. In this line, the researchers noted that the accumulation contradicts previous bear markets. According to the report: 

“As opposed to the last bear market, where all holders across different wallet sizes were panic-selling, in this bear market, we have seen a consistent accumulation in almost all accounts. Accounts above 10,000 Bitcoins have seen an increase which is likely due to increased institutional adoption.”

Bitcoin holder wallet chart. Source: CryptoCompare

Meanwhile, Bitcoin is attempting to push past the $21,000 level. By press time, the asset was trading at $20,200 with gains of about 1% in the last 24 hours. Notably, Bitcoin appeared in line to surpass $21,000 before correcting in reaction to the latest Federal Reserve interest rate hike.

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