Topic: Help me understand this apparent contradiction between bitcoin and inflation (Read 513 times)

The result of inflation is the short term effect the price of bitcoin because that time the total ecomomic situation was unstable. In the middle of 2023 the inflation of us was high that time bitcoin rate gradually in less the regular price.

In this situation US government taken some of decision like interest rate of 3.11 percent on its debt and continuing an upward trend in interest rates.When US Treasury bond yields rise, international investment in that country increases and the currency strengthens.Bitcoin price rise inflation of hedge between.

In my view, in the short term, inflationary pressures may trigger market panic and lead to a decline in Bitcoin prices as investors may prefer more stable assets. However, in the long run, Bitcoin appears more favorable during periods of high inflation due to its limited supply and decentralization. Thus, in times of rising inflation, the price of Bitcoin may begin to rise, despite a temporary dip in the short term.

Inflation in my country like yours causes the value of foreign currencies to increase massively. I can easily estimate if I compare the value of my country's money to the dollar ratio ten years ago. In 2014 one dollar was equal to 70 taka in my country but now one dollar is equal to 125 taka which is about 200 percent inflation. Earlier in my country the prices of daily necessities were within the purchasing range of peopleBut currently due to inflation people are out of purchasing power. But if transactions are done through Bitcoin, then I think it will be possible to reduce the amount of inflation to a large extent. As bitcoin is not legal in my country it is not possible to deflate inflation with bitcoin for now.

That's basically what happens, OP is right and it happens and he thinks it doesn't. Inflation goes up, bitcoin price goes up as well. In fact, during 2021 bull run, inflation was high due to pandemic as well, one of the reasons why we peaked so high was the inflation too.

Stock market goes up during that time as well, since inflation goes up, the value of fiat goes down, which means you have "more money" but in reality you also have the same money because the money you have while may look higher, it also can buy the same things since everything went up. This is why it's quite important to make sure that people know what they are doing with these type of investments and do not really end up with any trouble on the long run.

In my country, when inflation goes up, all foreign currencies, including the USD, go up. That means our native currency value has dipped due to inflation. So it's expected that the Bitcoin price will also rise when inflation increases. And due to the volatile behaviour of Bitcoin, it would rise more compared to foreign currencies. Usually, when inflation increases, we search for more income sources. As a result, those who are familiar with Bitcoin begin to accumulate it, causing the Bitcoin price to rise even further.

Inflation cannot affect the price of bitcoin in the way you are expressing it. If you hold bitcoin, you are somehow against inflation because the money you use to buy the bitcoin if you keep the money in your bank, inflation will affect the value of the money as it will not worth what it worth now if the inflation rate is, but if you hold bitcoin and the bitcoin pump, it will maintain its value and even add more value which is clearly against inflation.
Long term bitcoin investment is the best.

The main fault in the way people see it as inflation hedge and then get surprised by sudden ups and downs is that people who trade stocks also trade bitcoin and treat it like a stock, or a commodity.
If all stocks and commodities get hit by central bank's policies, so is bitcoin because people who invest in stocks get hit and have to sell everything they own, which includes cryptocurrencies.

If bitcoin was limited to being traded by normal people on exchanges and there was no demand from institutions you'd see much less stock correlation, but both average and top price would also be much lower. It's either this or that. You can stay in your little sandbox that bitcoin used to be in when the only exchange available worldwide was Mt.Gox, but then you'd still have low liquidity and would have to convert to USD first before you could buy bitcoin.

I believe the Bitcoin on the other hand is affected by an economic breakdown.  It may look like Bitcoin resist when inflation hits the economy but the longer this inflation surge stays, the more noticeable the effect of it on Bitcoin.  This kind of effect is hidden by the high volatility nature of Bitcoin because people think that the sudden drop of Bitcoin is normal because of its high volatility being a decentralized nature.  As one of the replies stated, having an economic breakdown decreases the capability of people to buy Bitcoin, and if they have Bitcoin, they might tend to sell it to make up for their financial shortage, thus the bitcoin market will have more supply than demand lowering its market value.


But what about if it goes the other way around?  If someone bought Bitcoin last 2021 when the market is at its peak then we can say that the logic you stated can't be applied to that situation. So I believe bitcoin being a hedge against inflation is situational.

Bitcoin is at the verge of decentralized currency with the potentialities of fluctuating known as volatility which the value of the currency goes UPs and DOWNs with the statistics of instabilities value rate.
The inflation in Bitcoin is an occurance based on when the supply is increasing over time. Apparently, the inflation nature of Bitcoin is not affected as a caused of economic breakdown such as that which has effect on the stock and the real estate investments.

I'm going to try and explain it this way. Imagine 10 years ago you had $5,000 and you decided to save in a bank. Based on inflation rate today, the 5k will not have enough purchasing power because commodities are on the high side. But if you'd bought Bitcoin with 5k in 2014 at $1000, you'd have 5 BTC which in today's market value should be around $235,000. So bitcoin is seen to be an edge over inflation in long term because as the price of commodities are increasing, the price of Bitcoin is also increasing.

The main point is that Bitcoin volatility is still much higher than any fiat inflation, so there can be no short term inflation-hedge feature of Bitcoin yet. The whims of the market vastly override even the 9% US inflation from a year ago. 9% on an annual basis is nothing compared to even the monthly volatility of Bitcoin, sometimes the weekly volatility of Bitcoin!


Right now Bitcoin is a long-term inflation hedge. This is specifically because it has a capped supply while inflationary currencies of course do not. And really, until Bitcoin is a very mature asset, perhaps a few decades from now, it's not going to be a short term inflation-hedge. Volatility of Bitcoin being an emerging global currency and savings/investment asset is going to be far higher than any fiat inflation (other than in hyperinflationary currencies). Only once Bitcoin is a more boring investment, with huge 4 year bull/bear markets gone, with everyone accepting Bitcoin as a normal currency, and therefore Bitcoin volaility will be a tiny fraction of what it is today, will it possibly be able to be used as a shorter-term inflation hedge. Until then, it's just a very quickly growing volatile asset whose own internal market pressures are much larger than the pressure of any fiat inflation can be.

Even though in theory it is true, every now and then you need to see how Bitcoin was when Corona happened and there you will determine how Bitcoin can create a different narrative from existing theories.

This is not like seeing the hedging process that many people mean for bitcoin there are definitely times when the market plays a role in rising and falling prices.
Of course, this is short-term performance and almost all products traded will experience the impact of inflation and not just bitcoin. But in bitcoin we see a real recovery process after the market performance becomes worse and people judge the hedging due to bitcoin's strength in self-defense.

Well, the one that makes stocks and Bitcoin prices go down because The FED raising interest rates will make investors interested in changing their risk asset to traditional currency to enjoy the interest rate. No wonder risk assets and Bitcoin will go down but not for the long term, It's normal because when the price goes down lots of people will buy at the low price from the assets eventually it will make the price go up little by little after the interest rate cut more whales will be entering the market again. 

Technically Bitcoin is inflationary because the miners mines Bitcoin and it make the circulation supply increased, it's no longer inflationary if the circulation supply capped to 21 Million. The difference is, money has no rule to print out new money while Bitcoin has a rule and everyone can know how many Bitcoin will be mined for every four years.

But, theoretically the Bitcoin's maximum supply could be changed, as long as majority developers accept the proposals.

Inflation and Bitcoin are two completely opposite things. Inflation is a central issue and is controlled by a third party. Inflation occurs when supply is increased along with supply. Here it does not depend whether the price rises in the market or not but only if both demand and supply become uncontrolled then inflation occurs. But inflation in the case of BitcoinThere is no chance of that happening because it is a decentralized currency and its control system is not over any third party who can influence supply and demand. The total supply of Bitcoin is 21 million. In this case, no matter how much we increase the demand for Bitcoin, there is no way to increase the supply, so there is no possibility of inflation in the case of Bitcoin.

I think there are no significance or relationships between bitcoin and inflation. Inflation is an event where the prices of anything that can be brought are getting higher and higher, so the cost of living is also getting higher or more expensive. While bitcoin is a digital or decentralised currency wherein its price is based on how many people invest in it or how many people do trades a day, you see the price drops and ups depending on the current situation. In past events or days, the price of bitcoin suddenly dropped, but not too deeply. But this is a common happening in bitcoin. Right now, the price of bitcoin got into 43k, which means it goes up. In summary, the price of bitcoin can't be affected by how high or low inflation is in a country. As long as bitcoin has investors and has demand, the price will keep on increasing.

Bitcoin is a hedge against inflation in the sense that, no matter how the value of a particular currency drops and your savings in fiat lose value, your savings in Bitcoin will not lose its value. Even if it loses its value, it will rise back up.

Inflation in a single country may not necessarily affect Bitcoin Price because Bitcoin is a global currency while that country's currency only affects that currency. Whatever is affecting Bitcoin significantly has to affect the global economy or a lot of players in the Bitcoin community.

If you save your money in a flat for two years, the value will drop because the value of the currency will depreciate. The reverse may be the case with Bitcoin.

That is the thing that makes it very confusing for many people, because bull run is shorter whereas bear run is longer. We have seen 2021 as a peak, that's true and saw 68k on October 2021, that was the last peak. Do you know how long the increase took? I mean we are still not above ATH so we are still not at peak, and that means the last peak was about 5-6 months, and the bear run was for 2+ years, that alone is proof enough that many people see only the bad side.

However, if you see how much it increases, you will see that it is not that bad and it is doing fine. I just hope that we are going to end up with something that will end up with a lot better result, it has to be something that needs to be considered longer to handle.

Money flow is key for growth of any market and we witnessed its importance during Covid-19 pandemic. It was expected to cause serious problems on global markets but because of massive QEs from FED and many central banks, massive money flows created and all markets skyrocketed months after appearance of pandemic. It went oppositely to all early anticipation but it can be explained by money flow.

Inflation was created during pandemic but it helped to increase money flow in all markets. People felt more easily and comfortably to spend their money, they invested and contributed to make many markets soared in two years.

Nope, inflation doesn't suppress the prices of risk assets. The attempts to fight inflation(interest rate hikes) are what suppresses the prices of risk assets. Inflation means having excessive amounts of fiat money in circulation, which causes the prices of everything to go up. Certain
assets like Gold, Real Estate and probably Bitcoin are being viewed as a "inflation-protection" assets, because they preserve their value in times of inflation. This means that their value/price does up with the same ratio as the level of inflation. In the short term, the Bitcoin price determined by the demand for Bitcoins, not by the overall inflation levels.