The COVID-19 pandemic shifted the global economic landscape, increasing inflation and sparking interest in assets like bitcoin, viewed as a hedge against inflation. But does this theory hold in practice?
Global Recognition of Bitcoin
Several countries and companies have added bitcoin to their reserves to protect against currency depreciation. The most notable example is El Salvador, which in 2021 accepted bitcoin as legal tender. Companies worldwide are following suit. To date, bitcoin has outperformed the S&P 500 and gold futures, but its reliability as an inflation hedge is still under scrutiny.
Doubts from Developed Economies
Unlike gold, bitcoin is a relatively new asset, and its role as a protective tool remains in question. Studies show that bitcoin's ability to protect against inflation has weakened over time, especially with increased institutional acceptance. For bitcoin to be a true inflation hedge, its returns must consistently outpace inflation—a requirement not always met.
Bitcoin's Role in Argentina and Turkey
In high-inflation countries, bitcoin has proven its worth as a wealth preservation tool. In Argentina and Turkey, bitcoin is used to bypass currency controls and protect savings from devaluation. Despite its volatility, it is becoming an essential part of the economic life in these countries, where local currencies have lost purchasing power.
While bitcoin has potential as an inflation hedge, its effectiveness largely depends on the economic context. In some countries, it has already become a crucial asset for capital preservation.
