Bitcoin It has long been described as “digital gold,” and, like the precious metal, it is often touted as a hedge against inflation. But new data from NYDIG shows that narrative doesn’t hold up.
In his weekly digest, Greg Cipollaro, head of global research at NYDIG, found that inflation is not a reliable factor driving up the price of Bitcoin. Monthly correlation data shows that Bitcoin’s relationship with inflation is both inconsistent and weak.
“We know the community loves to present Bitcoin as an inflation hedge, but unfortunately, the data here does not strongly support that argument,” Cipollaro wrote. “The correlations with inflation measures are neither consistent nor are they very high.”
Gold, the traditional inflation hedge, hasn’t fared much better. Its relationship with inflation has often been negative and fluctuated from one period to the next.
This challenges the conventional view that rising inflation automatically boosts gold prices, with Cipollaro himself writing that it is surprising that for gold, measures of inflation are inversely correlated.
So what changes between Bitcoin and gold? Real interest rates and the money supply.
For gold, declining real interest rates, adjusted for inflation, have long signaled higher prices. Bitcoin, although relatively new to the financial markets, is now displaying a similar pattern.
Cipollano found that Bitcoin’s inverse relationship with real rates has strengthened in recent years, which is likely a result of its increasing integration into the broader financial system.
The takeaway, according to NYDIG: Investors should stop thinking of Bitcoin as an inflation hedge.
Instead, it behaves more like a measure of global liquidity, moving in response to interest rates and capital flows, not the cost of groceries or gasoline.
Cipollaro concluded, “If we were to summarize how to think about each asset from a macro factor perspective, gold serves as a de facto rate hedge, while Bitcoin has evolved into a liquidity barometer.”