Cryptocurrency as an Alternative Inflation Hedge?
23 Pages Posted: 2 Aug 2021 Last revised: 28 Nov 2022
Date Written: November 23, 2022
We examine the association of Bitcoin, and other cryptocurrency, returns with changes in inflation expectations, forming a comparison with gold, a traditional inflation hedge. After controlling for uncertainty in economic policy, cryptocurrencies, and financial markets, we show that cryptocurrency returns are positively related to changes in US inflation expectations under a limited set of circumstances. However, unlike with gold, the identified relationship is only significant for short-term inflation expectations, and when inflation or market-implied inflation expectations are below 2%. Moreover, cryptocurrency returns tend to be lower on days with monthly CPI announcements and respond negatively to CPI surprises. Our results suggest that cryptocurrencies do not currently offer investors a viable alternative to gold in hedging inflation.
Keywords: Cryptocurrency, Gold, Inflation expectations, Bitcoin, Breakeven inflation rate
JEL Classification: G10, G14, E31
Suggested Citation: Suggested Citation