Bitcoin continues to recover, defying the typical inflation scenario. This raises the question of whether cryptocurrency has quietly moved from a risk asset to a hedge against inflation.
The leading cryptocurrency by market value is up 19% in just over a month, surpassing $80,000 on Monday for the first time since January. The rally comes as oil hovers above $100 and the Bloomberg Commodity Futures Index hit its highest level in a decade, pointing to inflation to come. Meanwhile, U.S. consumers’ 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 rates mean attractive returns on supposedly safe assets such as U.S. Treasuries and less incentive to invest in low-yielding assets like bitcoin. This logic has worked several times before, including in 2022 when the Fed aggressively raised rates to tame inflation, which partially catalyzed the Bitcoin crash that year.
This time it’s different
But this time, Bitcoin does not follow this scenario. Some analysts clearly recognize this lag, raising questions about the sustainability of the recovery. Others say something more fundamental is happening.
“Macroeconomic signals remain divided, with commodities factoring in supply-side tensions while risk assets continue to trade higher. This divergence highlights a growing disconnect between asset classes and raises questions about the sustainability of the current risk environment,” analysts at long-standing popular exchange Bitfinex said in a report shared with CoinDesk.
Hedge against inflation
A different 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 is supported by new inflows into spot ETFs.
Since March, the 11 U.S.-listed bitcoin spot exchange-traded funds have raised $4.45 billion in investor capital, nearly reversing the massive outflows in the fall that weighed on the spot price at the time. Most of these flows are apparently bullish directional bets rather than once-popular non-directional arbitrage plays, which have not lost favor with investors.
“The most interesting shift is happening on the institutional side. Continued inflows into Bitcoin ETFs indicate a broader shift in how hedging is approached. Gold is no longer the default – digital assets are increasingly being considered alongside, not after,” Ryan Lee, chief analyst at Bitget Research, said in an email.
Paul Howard, senior director at crypto-liquidity provider Wincent, also views bitcoin as a hedge against inflation and has a price target for it. “As a hedge against inflation and a highly liquid store of value, bitcoin has several characteristics that could support a 3.5x increase in price over the next three years,” he said in an email.
The idea of BTC being a hedge against inflation is no longer limited to crypto circles.
Last week, Paul Tudor Jones, one of the world’s most respected macro traders, the man who correctly predicted and traded the 1987 stock market crash, provided the most direct endorsement of the Bitcoin inflation-hedging thesis heard from a Wall Street heavyweight.
“Bitcoin is unequivocally the best inflation hedge there is,” 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 limited supply that can be mined. In a world where central banks have demonstrated a clear desire to stimulate the money supply, they own what they cannot print more of.
Don’t forget the actions
Here is the honest caveat that the bullish inflation-hedging narrative must heed.
Right now, U.S. stocks are rising sharply, which offers positive signals for bitcoin and the broader risk complex, as we noted on Monday. In this environment, it is therefore truly difficult to draw a definitive conclusion that BTC has become a hedge against inflation and that the supply of hedge, rather than the supply of risk, is driving BTC higher.
“After a strong April, BTC started May on strong footing, surpassing $80,000 for the first time since January 31. The move appears aligned with stocks, reinforcing a broader trend as BTC’s correlation with U.S. stocks climbs back toward 2023 levels, signaling a renewed connection to risk assets in general,” Singapore-based digital asset trading firm QCP Capital 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 sell-off, the story is confirmed. But if it sits alongside stocks, the risky asset label will remain.
This test has not arrived yet. Until then, the inflation thesis remains convincing.
