The Bitcoin halving has come and gone, with the king of crypto still holding strong above $60k USD. Bitcoin bounced pretty quickly off of the mid $59k mark a few days before the halving occurred. Though the narrative to sell the news on the Bitcoin halving was likely true for day traders or short-term holders, smaller players and long-term holders have likely held their positions through 2024 thus far.
The arrival of spot Bitcoin ETFs in early 2024 has certainly helped Bitcoin’s performance, but has Bitcoin finally become the hedge against inflation many envisioned? Let’s quickly recap Bitcoin’s 2023 performance before looking at how it has performed compared to inflation levels in various currencies.
Recapping Bitcoin’s 2023 Performance
In the wake of the FTX Exchange collapse in fall 2022, Bitcoin entered 2023 trading around $16k USD, having entered 2022 around $47k USD, and was in some people’s minds, headed towards zero. But Bitcoin’s price never really started to go down from there, rising to over $20k by the end of January 2023.
In March, the collapse of a couple mid-sized banks in the US pushed Bitcoin’s price towards $30k USD as it was shown once again that keeping your money in a bank wasn’t a guarantee of anything.
The price didn’t move much until the end of summer 2023, when the SEC lost their case against Grayscale regarding their denial of a spot Bitcoin ETF, which renewed optimism within the sector. The possibility of spot Bitcoin ETFs being approved saw Bitcoin’s price jump from below $30k USD at the end of October, to above $40k USD by the end of 2023.
Bitcoin 2024 Performance vs Inflation in Fiat Currencies
As you likely already know, spot Bitcoin ETFs ended up being approved on January 10, 2024, and the hype pushed Bitcoin’s price to a new all time high before a halving event for the first time in its history. Bitcoin hit a price of $73,750 USD on March 14, about two months after spot Bitcoin ETF approvals.
Though it took til March 14 for BTC to hit an all time high in USD, BTC had already been hitting all time highs in other fiat currencies before it reached one in USD. This is because of the inflationary nature of fiat currencies, and their ties to USD exchange and interest rates.
As a result, it’s interesting to look at Bitcoin’s performance compared to inflation in four major fiat currencies to see whether Bitcoin is indeed a good hedge against it. Let’s start with USD.
USD
Inflation in the US is certainly down from peak COVID pandemic levels, as it’s below 3.5% currently. The cumulative level of inflation in the US from 2022 to 2024 is 6.7%. This means that something that cost $1 in 2022, is now $1.07 today. 7 cents doesn’t seem like a lot on a single dollar basis, but if you step back to 2020 to 2024, then suddenly the cumulative level of inflation is over 20%. So something that was $5, is now $6, though wages certainly haven’t risen 20% in that time, leading to a loss in purchasing power for anyone that simply held USD.
If you deposited your stimulus check in 2020 into a savings account at 4%, you’d now have a little over $1400 when compounding yearly. However, you’ve lost about 20% of your purchasing power with those dollars due to inflation and rising costs of everyday goods.
If you bought Bitcoin with that same check, you’d have over $13k USD now, certainly more purchasing power than if you held USD, and clearly a good hedge against inflation.
The level of cumulative inflation seen with the USD essentially occurs within all the fiat currencies we’re going to look at below, though often at a higher rate, and is the basis for the comparison to hedging with Bitcoin.
EUR
Much like the USD, the Euro has lost about 20% of its purchasing power over the last four years, as a 100 EUR today will only buy you about 82.50 EUR worth of goods. Bitcoin was only about 10,000 EUR in 2020, but is now over 61k EUR in 2024.
Holding BTC over the past four years beats inflation for the EUR much like USD.
CAD
The pattern continues with CAD, as it has lost about 16% of its purchasing power over the last four years, and over 40% over the last 15. Notably, the CAD to BTC pair is just about the lowest it’s ever been despite BTC not being at an all time high, meaning you get less BTC for CAD than before, a trend that has been happening for the past few years.
AUD
The Australian Dollar has also lost about 16% of its purchasing power over the past four years. Like the Canadian dollar, the AUD/BTC pair is almost at an all time low despite BTC being close to an all time high.
Closing Thoughts
The numbers compared above show that Bitcoin is clearly a pretty good hedge against inflation of fiat currencies. There isn’t a single fiat currency that you’d be doing better with holding than if you had bought Bitcoin, at least over a four year time frame.
However, the gap in purchasing power to Bitcoin value only increases the further back you go. The cumulative inflation rate for the USD from 2009 (following the 2008 mortgage crisis) to present, is over 45%. It is actually over 40% for all of the fiat currencies noted.
Bitcoin was only a few cents a piece then, so you can probably see how it was definitely a good hedge against inflation, even then.
