Bitcoin Vs Gold: A Better Inflation Hedge? (2023)

When inflation picks up and crosses a 40-year high, investors look for things that can help mitigate its impact on their portfolios. However, investors generally gravitate to commodities, especially gold, in such times, which can cushion effects such as inflation. Furthermore, more and more traders are using Bitcoin and other cryptocurrencies as an alternative way to hedge against effects such as inflation. So now the question arises is one better than the other? However, in conclusion: Several reasons result in gold outperforming BTC as an inflation hedge. Many experts still do not view BTC or other cryptos as an inflation hedge. If you want to start trading cryptocurrencies, Sign up now on this platform to get started.

Let us know through this blog which one is better between Bitcoin and gold to protect against inflationary effects. But before that let us know what is an inflation hedge.

What is an inflation hedge?

A hedge is an investment that is capable of offsetting something else, but the rationale behind hedging investments depends entirely on what the investor wants to do. If you invest in an inflation hedge, this means that you invest in an asset that you can expect to retain or increase in value over time, considering the effects of inflation. In addition to this, however, it can also mean investing in assets expected to depreciate as compared to the anticipated depreciation in currency value. Nonetheless, even a specific speculation that might seem to make a sensible pace of return, and yet the pace of expansion is viewed as high, may lose esteem after some time.

How does an inflation hedge work?

Suppose a person has an investment, which is giving a return of up to 3% per annum. And on the other hand, if the inflation rate is around 4%, then that person can effectively lose about 1% of the ‘real value’ of his investment every year. An inflation-like condition can occur by causing a fall in the value of money over time, as a result of which the same amount of money may lose its purchasing power and not be able to purchase goods or services in the future. Will be The impacts of inflation might diminish the genuine worth of your investment. However, to protect against such erosion, an inflation hedge seeks returns above the level of inflation. Because the ideal inflation hedge is an asset that can maintain or even increase its value during periods of inflation. However, many companies typically use inflation hedges to reduce operating costs as well as during periods when they expect high inflation. Furthermore, as input costs rise, companies may be forced to raise prices, accept lower profit margins, or even cut their operating costs.

Bitcoin Vs Gold

Bitcoin has emerged as a digital currency, which is commonly used to act as a form of money and payment. BTC differs from the US dollar in that the number of digital coins is limited, which amounts to approximately 21 million. Conversely, the money supply can also be increased by central banks printing more money. Furthermore, it has been argued by proponents that Bitcoin’s scarcity makes it a great store of value and thus can provide a hedge against inflation. On the other hand, if we talk of gold, it has long been seen as the last hedge against inflation. This is also because it is in relatively limited supply and is commonly used in tangible products such as jewellery. However, its track record against inflation has been quite different.

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