BTC (Bitcoin) has experienced a significant increase this week, rising 38% since March 11th. Its performance has been generally superior to all altcoins, including ETH. Some argue that this proves the validity of BTC's "inflation hedging" theory. However, just nine months ago, BTC's inflation hedging theory was severely challenged, as the price dropped when inflation peaked. Only now can we truly see the impact of inflation on the financial system, and BTC has finally responded. BTC's response will roughly follow the trend of the cryptocurrency market, so it is unlikely to respond early to various leading indicators.
The object of BTC's hedging is systemic chaos, not the weakening of consumer purchasing power. The idea that BTC will flexibly adjust with US dollar inflation at best only simplifies the actual argument. On the one hand, BTC needs broader adoption to make these mechanisms work. Currently, there are too many speculative factors included in the price, making it unable to have a linear response to inflation.
Furthermore, a more precise version of the "inflation hedging" theory will detail the risks that BTC can truly hedge against, which are structural chaos in financial crises. As we are now seeing, financial crises are increasingly closely related to interest rates and other central bank manipulations, about half of which are aimed at addressing inflation.
BTC's performance suggests that it is in line with expectations.
There is a view that the surge in BTC price is not due to the long-term impact of inflation, but rather because the market sees a signal of the end or pause of central bank rate hikes, which portends lucrative returns for various risk assets. Hedge funds have been hit hard due to a double whammy of risk hits in 2022, where tech stocks were hit by rate hikes, and Silicon Valley Bank's foolish bet on future low rates was the main reason for its bankruptcy. Furthermore, new trading positions in the past week have been destroyed, as the bankruptcy of the bank is seen as a red light for the Fed's rate hike, which is also a signal that the economy has already slowed down. These changes may also contribute to the rise of BTC. After three bank bankruptcies in one week, the market may believe that the Fed is likely to stop rate hikes or even reverse the situation, which also leads to people who are keen to invest in "risk assets" appearing successively. This may make those who are anxious about the banking industry more determined to turn to BTC.
We will find out more about this issue this week. The Federal Open Market Committee (FOMC) of the Fed is expected to announce a rate hike. If the FOMC deems the threat of further financial disaster to be high enough, it may pause the rate hike. On the other hand, we still face 6% inflation, so I personally believe that another rate hike is still possible, perhaps balancing the difference with a magnitude of 0.25%, but certainly not doing nothing.
If there is no rate hike on Wednesday, the market may interpret it as a new round of prosperity for cheap currency, and BTC may truly become a risk asset, even if the Fed reaffirms its commitment to fight inflation at all costs.
The true test of the more precise version of the "inflation hedge" argument will be whether further trouble for banks, without considering rate hikes, will lead to further price increases for BTC. Until that happens, everything is speculation.
It can be said that BTC has been hovering in this position for a long time, and the direction is not so clear. Short-term strategies should be prioritized, and position control is necessary. Personal advice on strategy will be continuously updated, and friends who are unclear can keep an eye on it.
The object of BTC's hedging is systemic chaos, not the weakening of consumer purchasing power. The idea that BTC will flexibly adjust with US dollar inflation at best only simplifies the actual argument. On the one hand, BTC needs broader adoption to make these mechanisms work. Currently, there are too many speculative factors included in the price, making it unable to have a linear response to inflation.
Furthermore, a more precise version of the "inflation hedging" theory will detail the risks that BTC can truly hedge against, which are structural chaos in financial crises. As we are now seeing, financial crises are increasingly closely related to interest rates and other central bank manipulations, about half of which are aimed at addressing inflation.
BTC's performance suggests that it is in line with expectations.
There is a view that the surge in BTC price is not due to the long-term impact of inflation, but rather because the market sees a signal of the end or pause of central bank rate hikes, which portends lucrative returns for various risk assets. Hedge funds have been hit hard due to a double whammy of risk hits in 2022, where tech stocks were hit by rate hikes, and Silicon Valley Bank's foolish bet on future low rates was the main reason for its bankruptcy. Furthermore, new trading positions in the past week have been destroyed, as the bankruptcy of the bank is seen as a red light for the Fed's rate hike, which is also a signal that the economy has already slowed down. These changes may also contribute to the rise of BTC. After three bank bankruptcies in one week, the market may believe that the Fed is likely to stop rate hikes or even reverse the situation, which also leads to people who are keen to invest in "risk assets" appearing successively. This may make those who are anxious about the banking industry more determined to turn to BTC.
We will find out more about this issue this week. The Federal Open Market Committee (FOMC) of the Fed is expected to announce a rate hike. If the FOMC deems the threat of further financial disaster to be high enough, it may pause the rate hike. On the other hand, we still face 6% inflation, so I personally believe that another rate hike is still possible, perhaps balancing the difference with a magnitude of 0.25%, but certainly not doing nothing.
If there is no rate hike on Wednesday, the market may interpret it as a new round of prosperity for cheap currency, and BTC may truly become a risk asset, even if the Fed reaffirms its commitment to fight inflation at all costs.
The true test of the more precise version of the "inflation hedge" argument will be whether further trouble for banks, without considering rate hikes, will lead to further price increases for BTC. Until that happens, everything is speculation.
It can be said that BTC has been hovering in this position for a long time, and the direction is not so clear. Short-term strategies should be prioritized, and position control is necessary. Personal advice on strategy will be continuously updated, and friends who are unclear can keep an eye on it.
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