NEW YORK, NY – NOVEMBER 30: Larry Fink takes the stage at the 2022 New York Times Dealbook on November 30, 2022 in New York City. (Photo by Thos Robinson/Getty Images for The New York Times)
Getty Images for The New York Times
Satoshi Nakamoto created Bitcoin as an alternative to the fiat currency system, and Bitcoin is increasingly accepting this role. The clearest sign of the conflict between Bitcoin and fiat currencies is that more billionaire investors are turning to Bitcoin as a hedge. Wall Street titans Larry Fink (BlackRock), Stanley Druckenmiller (Duquesne Family Office), and Paul Tudor Jones (Tudor Investment Corporation) have recently expressed skepticism about U.S. monetary policy. expressed his stance. At the same time, they acknowledge that Bitcoin is a modern alternative to gold and has real potential to protect portfolios from inflation.
Yes, inflation expectations remain despite official reports of September inflation at 2.4%. These legendary investors warn that government inflationary policies and rising national debt could cause inflation to persist beyond current projections. This would make Bitcoin, with its finite supply and decentralized nature, an attractive diversification asset.
short bond
Speaking at the Saudi Future Investment Initiative last week, Larry Fink reaffirmed his expectation that inflation will continue. BlackRock’s CEO believes that government inflation policies have caused “the most embedded inflation in the world we’ve ever seen.” He added that interest rates will not fall as much as expected, predicting only a modest 0.25% cut this year. This environment is not ideal for investing in government bonds. Inflation eats away at real returns, and without significant interest rate cuts, current high-yield bonds will not rise enough to outperform.
Stanley Druckenmiller has taken an even more skeptical stance, openly opposing the Fed. “I thought it was a mistake for the Fed to cut it by 50 (basis points), so I shorted the bond that day,” he said in an interview with Bloomberg earlier this month. The veteran investor is known for achieving an average annual return of 30% over 30 years with Duquesne Capital. He points out that while the Fed is currently pursuing restrictive policy, the market is showing otherwise. “Stocks are at all-time highs, gold is at all-time highs, GDP is above trend, credit is tight, bank earnings and prospects look good…Cryptocurrency is going crazy. No restrictions in sight. No.”
Paul Tudor Jones tackled another of America’s deepest problems: the $35 trillion national debt that is spiraling out of control. The billionaire hedge fund manager told CNBC that inflation risks loom after the November election as Harris and Trump have promised spending increases and tax cuts, worsening the debt outlook. Jones believes the only viable path forward is to climb out of debt. This means keeping interest rates low, allowing inflation to rise, and “inflating out” the real value of debt. This would reduce the debt burden while avoiding immediate austerity measures, which are notoriously difficult for any politician to implement.
From this perspective, betting on bonds seems like a really smart move. But can Bitcoin really serve as an inflation hedge?
Can Bitcoin be a safe-haven asset?
The story of “digital gold” is one of Bitcoin’s most famous stories. However, it is often challenged by those who argue that such volatile assets cannot serve as a safe haven. This argument has held true before. Bitcoin volatility fluctuated between 50% and 140% from 2017 to 2020, but has been on a steady downward trend since then. Since 2023, it has ranged from 23% to 65%, a level comparable to stocks and even gold. For context, the VIX (S&P 500 Volatility Index) has hovered between 16 and 33% in recent years. GVZ (CBOE Gold Volatility Index) was 10-30%. As Bitcoin’s adoption and its market capitalization grow, analysts expect Bitcoin to experience fewer dramatic price fluctuations.
Bitcoin volatility from 2017 to 2024 compiled by The Block
Marie Potelieva “The Block”
Skeptics also argue that Bitcoin’s performance in past crises calls into question its credibility as a safe-haven asset. At the peak of US inflation in May-June 2022, when the Fed began aggressive interest rate hikes, BTC fell by 55%. At the same time, risk-on stocks in the S&P 500 fell 15%, and risk-off gold fell just 6%. Market stress typically determines whether an asset is risk-on or risk-off. From this perspective, Bitcoin has failed the test.
However, it is important to consider factors specific to the cryptocurrency market. In May 2022, the algorithm Terra collapsed dramatically, wiping out its $50 billion valuation. Although not directly related to Bitcoin, Terra’s collapse caused significant reputational and financial damage to the cryptocurrency ecosystem and triggered a wave of bankruptcies. Another feature of Bitcoin is its four-year halving cycle, which also influences price trends. As investors become more discerning, Bitcoin may come to be seen as an independent asset that is less susceptible to broader crypto market turmoil.
long bitcoin
The billionaire investor appears to already understand the subtleties of Bitcoin and its potential as a hedge against inflation.
Larry Fink, once an outspoken skeptic, now believes that “Bitcoin is an asset class in its own right, an alternative to other commodities like gold.” We believe that the application of this type of investment will expand. , BlackRock’s Bitcoin Spot ETF has amassed $28 billion in assets and, in the words of Robbie Mitchnik, head of digital assets at BlackRock, believes Bitcoin is an “emerging global currency alternative.” It is said that It is a “rare, global, decentralized, non-sovereign asset” with no country-specific or counterparty risks. Michnik believes these characteristics make Bitcoin fundamentally different from risk-on assets.
Paul Tudor Jones is even more direct. “I’m long gold. I’m long Bitcoin. I’m long commodities because I think they’re wildly undervalued.”
As for Stanley Druckenmiller, he famously said in 2023, “I don’t own Bitcoin, but I should.” It is unclear whether this legendary investor currently owns any coins. But he said cryptocurrencies could play a big role in the renaissance because “people don’t trust central banks.”
Whether Bitcoin can truly hedge against inflation is a question that only time will answer. Unlike short-term investments, inflation hedges take decades to prove their effectiveness. So far, Bitcoin has beaten inflation. Over the past 10 years, the US dollar has fallen by 33% while BTC has risen by 22,208%. No one knows if this will last, but Wall Street appears to have made up its mind.
