Precious metals used to be the best way to protect your portfolio from natural value deterioration, but Bitcoin is changing the game.
During times of international economic crisis, governments print money. This leads to inflation and investors subsequently stashing their investment capital in long-term, stable investments. Historically, that has meant gold, but in the current economic crisis, gold has been joined by another long-term store of value: Bitcoin (BTC).
There are several good reasons for this. The United States Federal Reserve is handling the crisis terribly, and has responded to soaring unemployment numbers in the same way they always do: by printing money. Already, the dollar has lost 5% of its value, with predictions that this is only the beginning. The currency is expected to shed up to 20% in the next few years,according to analysts at Goldman.
Alongside this devaluation has come another threat to investors: deflation. With the value of dollar assets dropping rapidly and the worst yet to come, investors are looking to Bitcoin as a hedge against deflation. This appears to be the primary reason why Bitcoin has retained its value despite woeful news in other parts of the economy.
Are these investors correct, though? Can cryptocurrency act as a hedge against the dollar’s inflation? Let’s dive into it.
Inflation and deflation
For crypto investors accustomed to dealing with daily — or even hourly — market movements, it can sometimes be easy to forget about the macro-level trends that drive our economy. Inflation is one of these, and it’s useful to have a broad definition of the term before we look specifically at the role of crypto in beating it.
Essentially (and as you might remember from Economics 101), inflation generally comes about because of a general decrease in the purchasing power of fiat money. Many things can cause this loss of purchasing power: foreign investors pouring out of a particular currency, or even investors attacking a currency. Most often, though, inflation is the result of an increase in money supply, like when the Fed unilaterally creates billions of dollars and sends out checks to millions of Americans, for instance.
Deflation is the opposite. In deflationary scenarios, prices decrease as fiat currency increases in value relative to different goods and services. Again, there can be different causes for this, but it generally comes about due to tightly controlled fiscal policies, or technological innovation.
The global pandemic and inflation
The key point in these definitions is that inflation can only occur in fiat currencies — i.e., those not based on the market value of a tangible asset, but largely on confidence in growing gross domestic product. Since the Bretton Woods agreement of 1944, the latter has been the basis of the U.S. dollar’s value.
Having a fiat currency gives governments a powerful degree of freedom when it comes to printing money, and supposedly when it comes to controlling inflation. However, when confidence in the government is low (as it is now), government spending programs can lead to inflation quickly getting out of control. In the 1970s, gold boomed because investors saw it as a hedge against the dollar’s rapid inflation.
This is similar to what is happening now. The global COVID-19 pandemic has given rise to a massively inflationary monetary policy and aggressive expansion of money supply while prices in certain key areas such as food staples keep increasing due to supply shocks caused by lockdowns.
In this environment, it’s no surprise that gold is booming. There is, after all, only a limited supply of gold on earth, and so its price cannot easily be affected by government policy. Some crypto currencies, however, are also booming — apparently for the same reason. Billionaire investors are therefore lining up to compare Bitcoin to gold.
Bitcoin: A deflationary asset?
The reason why some forms of cryptocurrency can act as a hedge against inflation is precisely the same reason gold can: there is a limited supply. This is something that is often forgotten about by many, even those in the crypto space, but it’s worth remembering that many cryptocurrencies — and most notably, Bitcoin — are built with an inherent limit.
The 21 million Bitcoin limit means that at a certain point, there should be fewer Bitcoins versus the demand for them, meaning that in terms of value, the price per unit should increase as the supply decreases. In addition, the fact that Bitcoin allows investors to limit their exposure togovernment surveillance networks means that, in this time of low confidence in government, many people are moving their investments away from the U.S. dollar and toward crypto in order to avoid inflation and government tomfoolery. In other words, the comparison with gold investments of previous crises seems pretty apt.
But here’s the thing: It’s not completely clear that Bitcoin is, in fact, a deflationary asset. Or at least, not yet. While it is technically true that the supply of the currency is limited, we are nowhere near that limit, with most estimates putting the last Bitcoin to be mined in 2140. What this means, in practice, is that Bitcoin will be unable to act as a completely stable hedge against inflation for at least another 120 years.
Flexibility and stability
This might not matter that much, of course. One of the primary driving forces behind the rise of Bitcoin has been the combination of (relative) stability and (relative) variability that it affords. In this context, it’s heartening that investors now regard crypto as a stable hedge against an inflating U.S. dollar, but to regard crypto as merely a replacement for gold would be to miss the point: Cryptocurrency is far more than just a hedge.
This article does not contain investment advice or recommendations. Every investment and trading move involves risk, readers should conduct their own research when making a decision.
The views, thoughts and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.
Jeff Baerwalde is a freelance journalist. He can be found hanging out in comic book shops when he’s not consulting as an environmental evangelist for his company, Earth One.
Greenback Surges after BOJ Hikes and Ends YCC and RBA Delivers a Dovish Hold
Overview: The US dollar is surging today against
most of the G10 currencies, and although the intraday momentum is stretched
ahead of start of the North…
Overview: The US dollar is surging today against
most of the G10 currencies, and although the intraday momentum is stretched
ahead of start of the North American session, there may be little incentive to
resist before the end of the FOMC meeting tomorrow. The Bank of Japan's rate
hike and the end of Yield Curve Control were not seen as the start of the
tightening cycle. The two-year JGB yield slipped to a two-week low and settled
below its 20-day moving average for the first time since mid-January. The Reserve
Bank of Australia delivered a dovish hold by dropping the reference the future
tightening. The yen (~-0.95%) and Australian dollar (~-0.85%) are the weakest
of the G10 currencies. Emerging market currencies are lower, led by the
Philippine peso (~-0.65%). The offshore yuan is weaker for the sixth
consecutive session.
Japanese, Australian, and New
Zealand equities bucked the regional trend to advance today. Stoxx 600 in
Europe is slightly lower, and if sustained, it would be the fourth consecutive
losing session. That would be the long losing streak since last October. US
index futures are nursing small losses. Ten-year JGB and Australian bond yield
fell almost three basis points today. European benchmark yields are mostly
slightly softer, though the periphery is lagging the core today. The US 10-year
yield is little changed near 4.32%. The high for the year is near 4.35%. The US
two-year yield did set a new high for the year yesterday near 4.75%. It is near
4.72% now. The greenback's strength is capping gold, which is trading inside
yesterday's range and straddling the $2150 area. May WTI soared to $82.50
yesterday as its recent rally was extended amid Ukrainian strikes on Russian
refiners. Diesel futures rose for the fourth consecutive session yesterday and
gasoline futures extend its rally for a sixth session. May WTI is consolidating
in a narrow range around $82.
Asia Pacific
The Japanese press reports
turned out to be fairly accurate: the Bank of Japan hiked its overnight target
rate to 0%-0.1%. It
scrapped the Yield Curve Control and confirmed it would stop buying ETFs. The
one surprise was that the central bank indicated it would continue to purchase
long-term bonds as needed. Governor Ueda, on one hand, said that the sustained
2% inflation target is not in hand, which sounded dovish. He also recognized
that if the positive trends for wages and prices lift inflation expectations,
and higher prices results, rate hikes may be necessary. The 10-year yield
softened by almost three basis points (to ~0.73%). The Nikkei rallied 1%, and
the yen was sold. The US dollar reached about JPY150.50.
As widely expected, the
Reserve Bank of Australia left its cash target rate at 4.35%, where it has been
since it was lifted by 25 bp last November. Economic activity has slowed, and price pressures are
moderating, but the RBA seems to be in no hurry to unwind the November hike.
Still, it dropped the reference to possible future hikes. The dovish hold sent
the Australian dollar to a nine-day low near $0.6510. The futures market is not
100% confident the RBA will do so before September. However, the odds of an
August cut have been marked up to around 97% from about 78% yesterday.
The dollar is rising against
the Japanese yen for the sixth consecutive session. It matches the longest advancing streak
since last August and lifted the greenback to two-week highs near JPY150.70.
The greenback approached JPY151 in mid-February through early March. The high
from 2022 and 2023 was closer to JPY152. The intraday momentum indicators are
stretched ahead of the North American open, but there may be little incentive
to resist before tomorrow's FOMC meeting. What is being seen as a dovish
hold by the RBA has sent the Australian dollar to nearly $0.6500. The
trendline off the mid-February and early March lows comes in today a little
below there. The low earlier this month was set slightly below $0.6480. The
intraday momentum indicators are stretched. Initial resistance now is seen int
he $0.6520-25 area. The greenback's gains, especially against the yen, have
weighed on the Chinese yuan. The dollar is challenged the CNY7.20 cap that
has not been violated this year. The PBOC set the dollar's reference rate at
CNY7.0985 (CNY7.0943 yesterday). The Bloomberg average was CNY7.2020 (CNY7.1993
yesterday). The dollar is rising against the offshore yuan for the sixth
consecutive session. It has reached CNH7.2130, its highest level in two weeks. The
high for the year was set on February 14 near CNH7.2335.
Europe
The focus will not shift to
Europe until Thursday. Three
central banks meet then, Norway's Norges Bank, the Swiss National Bank, and the
Bank of England. It is true the UK sees February CPI tomorrow. The
year-over-year rate is expected to fall toward 3.5% from 4.0% and the core rate
is seen falling to 4.6% from 5.1%. The UK's three-month annualized rate may
near 2% and the six-month annualized increase maybe around 1.6%. Still, the
market does not expect the BOE or the other west European central banks to
change policy. Still, we suspect the risk is for a SNB move to get ahead of the
ECB. The macro backdrop is conducive for a move with softer growth and low
inflation.
The March ZEW survey in
Germany showed a little improvement. The
assessment of the current situation remains poor. It edged up to -80.5 from -81.7. At its worst, during the pandemic, it fell to
-93.5 in May 2020. It had recovered and peaked at 21.6 in October 2021, and had
already begun weakening again before Russia's invasion of Ukraine. It was at
-10.2 in January 2022. The expectations component is a different story. It rose for the eighth consecutive month to 31.7, which is the highest reading since February 2022. The high last year was set in February at 28.1.
The euro met sellers in the
US morning yesterday as it pushed above $1.09. The selling knocked it down to new
session lows near $1.0865 It has been sold to $1.0835 today, around where the
(50%) retracement of the rally from the February 14 lows and the 200-day moving
average are found. A break of this area targets $1.08. Note that in the futures
market, the non-commercial (speculative) net long euro position has risen by
50% since the mid-February low through March 12 that is covered by the most
recent CFTC report. Meanwhile, the non-commercial net long sterling position
has risen every week this year but one, and at nearly 70.5k contracts (GBP62.5k
per contract or almost $5.6 bln position), it is the largest net long position
since 2007. Sterling extended its losses yesterday to nearly $1.2715, and has been sold to almost $1.2665 today, the lowest level since March 4. The
$1.2670 area corresponds to the (61.8%) retracement of the recovery off the
year's low set on February 14 near $1.2535. The intraday momentum indicators
are stretched, but there is little chart support ahead of $1.2600.
America
The focus, of course, is on
tomorrow's Fed meeting. No
one expects the Fed to do anything. It is more about what the Fed says, and
here, the dot plot is important. Keen interest is in the number of rates cuts
the median dot signals. Three cuts were signaled in December. While CPI and PPI
were slightly above market expectations, we do not think that they deviated
much from what the Fed anticipated. To us, a key consideration is Fed Chair
Powell's acknowledgement that officials did not need to see better data to
boost their confidence that inflation was headed back to target. It just needed
to see good data. Other macro forecasts may be tweaked. The 4.1% unemployment
rate anticipated for this year looks low. It was at 3.9% in February. The
median dot was for the headline and core PCE deflator to be at 2.4% at the end
of the year. They stood at 2.4% and 2.8%, respectively in January and are
expected to be unchanged when the February series is reported next week. The
median dot in December was for the economy to grow 1.4% this year. The median
forecast in Bloomberg's monthly survey was for 2.1% growth, which is the same
as the IMF's projection. On tap today, February housing starts and permits,
which are expected to tick up after weather-related weakness in January.
Canada reports February CPI
today. Given the base
effect, the 0.6% median forecast in Bloomberg's survey translates into a 3.1%
year-over-year rate. It was at 2.9% in January. The low print in 2023 was in
June at 2.8%. The underlying core measures are expected to be flat. The swaps
market has about a 50% chance of a cut in June. It nearly fully discounted on
March 5, the day before the Bank of Canada met. The summary of its
deliberations will be published tomorrow. The market has about 60 bp of cuts
discounted for this year, which is two quarter-point moves and around a 40%
chance of a third. A 100 bp of cuts was fully discounted as recently as
February 20.
The US dollar hovered around
little changed levels against the Canadian dollar yesterday. Neither rising US equities (risk-on) nor
an extension of oil's rally did much for the Canadian dollar. Resistance near
CAD1.3550 has been overcome today and it the greenback looks poised to re-test
the CAD1.36 area that capped the greenback in late February and earlier this
month. A band of resistance extends toward CAD1.3620-25. Yesterday,
the US dollar rose for the third consecutive session against the Mexican
peso, which matches the longest advance in six months. The nearly 0.9%
rally was the most since mid-January. Mexico was on holiday yesterday and the
thin markets may have exacerbated the move. The US dollar rose to a six-day
high of almost MXN16.87. This effectively recouped nearly half of the
greenback's losses this month. Today, the dollar is approaching the next
retracement (61.8%) and the 20-day moving average are near MXN16.93. Brazil was
not closed and fell for the third consecutive session. In fact, the dollar
poked above BRL5.03, its highest level since last November 1. Nearly all
emerging market currencies fell yesterday. The South African rand (~-0.95%) was
the weakest followed by the Mexican peso (~0.75%). Emerging market currencies
are no match for the dollar's surge today. The MSCI Emerging Market Currency
Index is off for the fifth consecutive session.
In a new book, experts in a variety of fields explore nocebo effects – how negative expectations concerning health can make a person sick. It is the first time a book has been written on this subject.
“I think it’s the idea that words really matter. It’s fascinating that how we communicate can affect the outcome. Communication in health care is perhaps more important than the patient recognises,” says Charlotte Blease, who is a researcher at the Department of Women’s and Children’s Health at Uppsala University.
Along with colleagues at Brown University in the United States and the University of Zurich in Switzerland she has written the book “The Nocebo Effect: When Words Make You Sick”. Nocebo is sometimes called the placebo’s evil twin. A placebo effect occurs when a patient thinks they feel better because of receiving medicine and part of that perception is due not to the drug but to positive expectations. The concept of the nocebo effect means that harmful things can happen because a person expects it – unconsciously or consciously. This is the first time the phenomenon has been addressed in a scholarly book. Researchers in medicine, history, culture, psychology and philosophy have examined it, each in their own particular area.
Credit: Catherine Blease
In a new book, experts in a variety of fields explore nocebo effects – how negative expectations concerning health can make a person sick. It is the first time a book has been written on this subject.
“I think it’s the idea that words really matter. It’s fascinating that how we communicate can affect the outcome. Communication in health care is perhaps more important than the patient recognises,” says Charlotte Blease, who is a researcher at the Department of Women’s and Children’s Health at Uppsala University.
Along with colleagues at Brown University in the United States and the University of Zurich in Switzerland she has written the book “The Nocebo Effect: When Words Make You Sick”. Nocebo is sometimes called the placebo’s evil twin. A placebo effect occurs when a patient thinks they feel better because of receiving medicine and part of that perception is due not to the drug but to positive expectations. The concept of the nocebo effect means that harmful things can happen because a person expects it – unconsciously or consciously. This is the first time the phenomenon has been addressed in a scholarly book. Researchers in medicine, history, culture, psychology and philosophy have examined it, each in their own particular area.
“It’s a very new field, an emerging discipline. Even if the nocebo effect is documented far back in history, it perhaps became especially obvious during the coronavirus pandemic,” Blease says.
A previous study of patients during the pandemic (see below) shows that as many as three quarters of the reported side-effects of the coronavirus vaccine may be due to the nocebo effect. The study involved more than 45,000 participants, approximately half of whom were injected with a saline solution instead of the vaccine but despite this still experienced many side-effects such as nausea and headache. In the book, the authors highlight that one issue that disappeared in the discussion of side-effects during the coronavirus pandemic was that many of these were actually due to the nocebo effect.
“Whether this is due to expectations – the nocebo effect – remains to be understood. However, it is curious that so many participants reported side-effects after receiving no vaccine. Regardless, some people may have been put off by what they heard about side-effects,” Blease comments.
On the off chance you hadn’t noticed, the world appears to be at an especially precarious moment presently. Obviously, war continues to rage in Ukraine and Gaza, with no end in sight to either conflict. Great Britain and Japan are currently in recession. Canada’s economy is an absolute disaster, with almost no hope of near-term recovery. Much of continental Europe and China are struggling economically, if not officially contracting. Some experts believe that the global economy more generally is sliding, slowly but surely, into recession. The only economic bright spot in the world is the United States, and even here we have our problems with consumer spending and sentiment, massive credit concerns, and inarguably sticky inflation.
Everywhere one looks, chaos reigns—or, at the very least, bubbles just below the surface.
Perhaps most telling among the signs of disarray is the unnerving rise of antisemitism in the United States, Europe, and throughout the world. Antisemitism, in general, has been intensifying, slowly but surely, over the last decade or so. Over the last few months, however, it has emerged fully into the open, undaunted and unembarrassed. What was once considered shameful and disconcerting is now warmly welcomed as a “rational” response to American foreign policy, Israeli war practices, “colonialism,” and “white privilege.”
All of this is troubling, to put it mildly, both in and of itself and as a harbinger of greater and more deadly global unrest.
Hatred of and anger toward Jews is not the same as other forms of bigotry.
In many ways, the history of Western anti-Jewish hatred mirrors the history of Western political chaos and collapse. Or, to put it another way, historically, Jews are not only the perennial scapegoats during periods of social upheaval and displacement, but resurgent anti-Semitism serves as the proverbial canary in the coal mine for the rise of revolutionary movements.
In his classic, The Pursuit of the Millennium, the British historian Norman Cohn argues that the Jewish diaspora generally fit comfortably, if tentatively into European society for most of the first thousand years or so A.D., and only became a hated and perpetually persecuted minority with the rise of utopian Millenarianism that accompanied and then outlived the Crusades. Beginning then and continuing for the next nearly a thousand years, Europeans came to associate Jews with the antichrist and thus to associate hatred and persecution of Jews with preparing the battlespace for the Second Coming. Many historians, including Hannah Arendt, believed that the anti-Semitism that was such an integral part of the West’s 20th-century collapse into totalitarianism was relatively new and, in any case, distinct from medieval anti-Semitism. Cohn’s history suggests otherwise, connecting the religious eschatology of medieval Europe to the quasi-religious eschatology of post-Enlightenment Europe, thereby connecting the persistence of Western anti-Semitism as well.
Cohn tells us that millenarian moments and the millenarian movements that capitalize on those moments all share a common group of characteristics. They all appear under certain social and economic conditions. They all appeal to a certain segment of the population at large, who then present themselves as economic, spiritual, and political leaders. They all utilize scapegoats, meaning that they all identify a different, usually much smaller segment of the population on whom they can blame all the world’s ills and then set about to cure those ills through the elimination of the scapegoat. And more often than not, that scapegoat tends to be Jewish.
In the conclusion to the second edition of Pursuit of the Millennium, Cohn notes that the millenarian fervor of the middle ages may have changed, but it never really died, and it maintained its common characteristics even as it became secular or “quasi-religious.” He wrote:
The story told in Pursuit of the Millennium ended some four centuries ago but is not without relevance to our own times. [I have] shown in another work [Warrant for Genocide: The Myth of the Jewish World Conspiracy and the Protocols of the Elders of Zion] how closely the Nazi phantasy of a world-wide Jewish conspiracy of destruction is related to the phantasies that inspired Emico of Leningrad and the Master of Hungary; and how mass disorientation and insecurity have fostered the demonization of the Jew in this as in much earlier centuries. The parallels and indeed the continuity are incontestable.
The parallels between the rise of Nazism and the current global unrest and demonization of the Jewish people are also largely incontestable. The election that brought Hitler to power didn’t happen in a vacuum, after all. It happened in the midst of global chaos, namely the Great Depression. It also followed the decadence and distortion of the Weimer Era. As the New York Fed has shown, even a global pandemic—the 1919 Spanish Flu outbreak—contributed to the sense of discomfort and disconnect among the German population, prompting increased support for Hitler and his Nazis.
The present global chaos doesn’t have to end the same way the chaos of a century ago did. It doesn’t have to result in the ascension of millenarian ideologies and their totalitarian defenders. History has shown that extremism can be short-circuited and radical ideologies undone. The first step in doing so, however, must be to bring an end to the rationalization of the persecution of the world’s Jews. The second step is to end the persecution itself.
Antisemitism is ugly and shameful, and it must be treated as such. For their sake and ours.
We use cookies on our website to give you the most relevant experience by remembering your preferences and repeat visits. By clicking “Accept”, you consent to the use of ALL the cookies.
This website uses cookies to improve your experience while you navigate through the website. Out of these, the cookies that are categorized as necessary are stored on your browser as they are essential for the working of basic functionalities of the website. We also use third-party cookies that help us analyze and understand how you use this website. These cookies will be stored in your browser only with your consent. You also have the option to opt-out of these cookies. But opting out of some of these cookies may affect your browsing experience.
Necessary cookies are absolutely essential for the website to function properly. These cookies ensure basic functionalities and security features of the website, anonymously.
Cookie
Duration
Description
cookielawinfo-checbox-analytics
11 months
This cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Analytics".
cookielawinfo-checbox-functional
11 months
The cookie is set by GDPR cookie consent to record the user consent for the cookies in the category "Functional".
cookielawinfo-checbox-others
11 months
This cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Other.
cookielawinfo-checkbox-necessary
11 months
This cookie is set by GDPR Cookie Consent plugin. The cookies is used to store the user consent for the cookies in the category "Necessary".
cookielawinfo-checkbox-performance
11 months
This cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Performance".
viewed_cookie_policy
11 months
The cookie is set by the GDPR Cookie Consent plugin and is used to store whether or not user has consented to the use of cookies. It does not store any personal data.
Functional cookies help to perform certain functionalities like sharing the content of the website on social media platforms, collect feedbacks, and other third-party features.
Performance cookies are used to understand and analyze the key performance indexes of the website which helps in delivering a better user experience for the visitors.
Analytical cookies are used to understand how visitors interact with the website. These cookies help provide information on metrics the number of visitors, bounce rate, traffic source, etc.
Advertisement cookies are used to provide visitors with relevant ads and marketing campaigns. These cookies track visitors across websites and collect information to provide customized ads.
