Bitcoin is a ‘critical hedge’ against inflation, belongs in same bag as gold

Recently, Bitcoin (BTC) has garnered growing support from traditional financial institutions that see the asset as a potential hedge against inflation and an investment opportunity. The backing has emerged as Bitcoin attempts to find a spark that will trigger the next bull run. 

In line with this trend, Jefferies, a leading global investment firm, is the latest entity to endorse Bitcoin as a “critical hedge” against potential monetary policies that might devalue fiat currencies and lead to a resurgence of inflation.

In a note to investors on Wednesday, October 4, the firm emphasized that Bitcoin’s unique qualities place it in the same league as gold as a dependable defense against inflation.

Christopher Wood, the Global Head of Equity Strategy at Jefferies, cautioned that major G7 central banks, with the Federal Reserve at the forefront, may struggle to smoothly exit from unconventional monetary policies. Wood underscored that a failure to exit from these monetary policies could lead to the fall of the dollar and, in return, benefit Bitcoin holders. 

“Such a failure to exit from unorthodox monetary policy in a benign manner is likely to culminate in the collapse of the U.S.-dollar paper standard to the benefit of both gold bullion owners and also owners of bitcoin,”

Ignoring recession concerns

In highlighting the potential significance of Bitcoin as a hedge against inflation, Jefferies pointed out that investors have primarily dismissed concerns of a U.S. recession, but economic indicators continue to signal an impending downturn.

Moreover, they pointed out that efforts to tighten monetary conditions will experience a more prolonged delay in this economic cycle due to the significant expansion of the money supply since 2020. In light of this, Jefferies encouraged investors to view Bitcoin and gold investments as insurance rather than short-term trades.

Jefferies has also recommended a 10% allocation to Bitcoin for U.S. dollar-based long-term global investors, including pension funds. The firm has incorporated Bitcoin into its global portfolio over the past couple of years, alongside physical gold, unhedged gold mining stocks, and Asia equities. 

“On the view that bitcoin has now become investible for institutions, with custodian arrangements in place for digital assets, and represents an alternative store of value to gold,” Jefferies said.

Impact of endorsing Bitcoin as inflation hedge 

The rating of Bitcoin as a “critical hedge” by Jefferies marks a significant milestone for Bitcoin. It reflects the growing acknowledgment of Bitcoin as a legitimate asset class and a store of value, particularly in times of economic uncertainty and evolving monetary policies.

It is worth noting that the focus has shifted toward several products that will likely influence the entry of traditional entities into the crypto market. Notably, at the moment, the market is awaiting a decision by the Securities and Exchange Commission (SEC) regarding the approval of a spot Bitcoin Exchange Traded Fund (ETF).