Bitcoin continues to accumulate and defies the typical inflationary playbook. It raises the question of whether the cryptocurrency has quietly transitioned from risk asset to inflation hedge.
The leading cryptocurrency by market capitalization is up 19% in just over a month, topping $80,000 on Monday for the first time since January. The increase comes as oil hovers above $100 and Bloomberg’s commodity futures index has jumped to a decade high, pointing to inflation in the pipeline. Meanwhile, US consumer inflation expectations are rising.
In the standard playbook, this combination is considered bearish for bitcoin. Rising inflation means the Federal Reserve is likely to keep interest rates higher for longer, while higher interest rates mean attractive returns on supposedly safe assets such as US Treasuries and less incentive to invest in non-yielding assets like bitcoin. This logic has worked several times before, most notably in 2022, when the Fed raised interest rates aggressively to tame inflation, partially catalyzing that year’s bitcoin crash.
This time is different
But this time bitcoin is not following that script. Some analysts clearly acknowledge the disruption, raising questions about the rally’s durability. Others say something more fundamental is happening.
“Macro signals remain divided, with commodities pricing supply-side stress while risk assets continue to trade higher. This divergence highlights a growing disconnect across asset classes and raises questions about the sustainability of the current risk environment,” analysts at prominent and long-standing exchange Bitfinex said in a report shared with CoinDesk.
Inflation hedge
Another interpretation is gaining ground, suggesting a shift in how BTC is used: from a risk asset to an inflation hedge. And this interpretation is not only circumstantial, but supported by renewed inflows into spot ETFs.
Since March, the 11 US-listed spot bitcoin exchange-traded funds have raised $4.45 billion in investor capital, nearly reversing the massive outflows during the fall that weighed on the spot price at the time. Most of these inflows appear to be bullish directional bets rather than the once-popular non-directional arbitrage game, which has not fallen out of favor with investors.
“The more interesting shift is happening on the institutional side. Continued access to bitcoin ETFs points to a broader change in how hedging is approached. Gold is no longer the default — digital assets are increasingly being considered alongside it, not after it,” Ryan Lee, chief analyst at Bitget Research, said in an email.
Paul Howard, senior director at crypto-liquidity provider Wincent, also sees bitcoin as an inflation hedge and has a price target for it. “As both an inflation hedge and a highly liquid store of value, bitcoin possesses several characteristics that could support a 3.5-fold increase in price over the next three years,” he said in an email.
The view that BTC is an inflation hedge is no longer limited to crypto circles.
Last week, Paul Tudor Jones, one of the most respected macro traders alive, the man who correctly called and traded the 1987 stock market crash, came out with the most direct support for bitcoin inflation hedging heard from a Wall Street heavyweight.
“Bitcoin is unequivocally the best inflation hedge out there,” Jones said in an interview on the Invest Like the Best podcast. “More than gold.”
His reasoning is structural. Unlike gold, whose supply increases by a few percent each year, bitcoin has a finite supply that can be mined. In a world where central banks have demonstrated a clear will to increase the money supply, they own things they can’t print more of.
Don’t forget stocks
Here’s the honest caveat that the bullish inflation hedge narrative needs to take into account.
Right now, U.S. stocks are on the upswing, providing positive signals for bitcoin and the broader risk complex, as we noted on Monday. In this environment, therefore, it is really difficult to draw a definitive conclusion that BTC has evolved into an inflation hedge and that the hedge bid rather than the risk bid is driving BTC higher.
“After a solid April, BTC has started May on a solid footing, breaking above $80,000 for the first time since January 31. The move appears to be in line with equities, reinforcing a broader trend as BTC’s correlation with US stocks climbs back towards 2023 levels, signaling a renewed broad connection with digital assets trading capital in Singapore,” QCP said in a market note.
The real test of the inflation hedge narrative will come if and when stocks fall. If bitcoin holds or rises during a stock selloff, the narrative is confirmed. But if it coincides with stocks, the risky asset label will stick.
That test hasn’t come yet. Until then, the inflation thesis remains compelling.
