Many investors are now choosing Bitcoin over Gold as a better hedge against inflation, according to a recent note sent by JPMorgan Chase to investors. This is partly backed by the growing Bitcoin valuation and persistent adoption by mainstream financial and non-financial, as well as the corporate world.
“The re-emergence of inflation concerns among investors has renewed interest in the usage of bitcoin as an inflation hedge,” the note said. “Institutional investors appear to be returning to Bitcoin perhaps seeing it as a better inflation hedge than gold.”
“There are tentative signs that the previous shift away from gold into Bitcoin seen during most of Q4 2020 and the beginning of 2021 has started re-emerging in recent weeks.”
Bitcoin has been superb this year in terms of return on investment – returning 90% this year to date. This is way more than what gold has returned – Gold is actually down by more than 7% in yearly ROI so far. Not even Silver (-17% yearly), Nasdaq Composite index (+15%), Dow Jones Industrial Average (+15%) came close. It also outperformed Google (+61%), Apple (+10%), Facebook (+23%), Microsoft (+35%) and Amazon (+3%) by huge margins.
In fact, what is happening to gold in terms of ROI can be said of Ethereum, which is performing even better than Bitcoin at 786.8%.
The endorsement of Bitcoin as a better inflationary hedge than gold is nothing new. This year, Apple co-founder Steve Wozniak termed it as the “amazing mathematical miracle” better than gold. Soros Fund Management chief investment officer Dawn Fitzpatrick was also quoted as saying that Bitcoin was taking away gold’s buyer base, taking away gold’s traction preference as an inflation hedge asset.
The position of Bitcoin as a better asset for hedging against inflation could be multiplied given the current inflation problems in the United States. Inflation is up this year as consumer prices looked north, supply chains for many businesses disrupted, and labor shortages biting.
Of course, many experts see Bitcoin as better resistant to inflation than fiat because the total units are limited without any risk of printing more. According to Federal Reserve economic data, the volume of currency in circulation is up 7% since October last year. Besides, fears of heightened inflation have been renewed with the current volatility in global crude oil prices.
According to JPMorgan, the adoption of Bitcoin is being propelled by, among other things, the rise of the Lightning Network protocol and the adoption of the cryptocurrency as a legal tender in El Salvador.