Bitcoin Crash November 16 2021: Bitcoin Is Not An Inflation Hedge
So today the cryptobear in me is looking at crashing bitcoin without the shock or surprise many will be experiencing.
This is what bitcoin does. It booms and crashes.
It could as easily be $20,000 as $80,000 in the next few weeks up to Christmas.
Bitcoin and Ethereum are most spectacularly volatile assets. They are trader paradise.
Now I’ve written about bitcoin being digital gold for years but it is not exactly like gold, and while it does a better job than gold as a haven asset it isn’t an inflation hedge like gold.
Bitcoin and the crypto asset class is not an easy hedge for anything.
Certainly it’s an asset for diversification and certainly packs a beta/volatility punch for those wishing to spice up their portfolios with a sprinkle of crazy dust, but using bitcoin as a hedge against a few years of highest inflation is impractical.
The idea that we have an inflationary dynamic well under way is a fairly strong thesis and the idea that assets that are hard are a good hedge against that is fair enough, but you can’t expect an asset that can halve and double and perhaps halve again in a single year to be a hedge against that kind of slow chronic process.
Again it is a fairly strong hypothesis to believe bitcoin will moon and double, triple, quadruple etc, but that is not a hedge against inflation, that is a one-way bet on asset appreciation. Bitcoin can move in a day what inflation might move in a year, and the level of inflation that would represent would bring wide financial panic.
Maybe it’s just semantics, but while you will surely outperform inflation if the bulls are correct, that performance will have little to do with the effect or inflation on the sort of depreciation that fiat is going to undergo in the next few years. If bitcoin was actually to act as an inflation hedge, most holders would be extremely disappointed.
While it might take 5 years to cut the value of money in half, anyone who has been watching can see 10%+ being cut off the value of bitcoin in the last 24 hours.
So where is bitcoin going now?
The bulls will continue to say to the moon and you have to say that bitcoin and crypto in general has been extremely strong, and this chart shows their thinking in a nutshell:
For a bear like me the future should look more like this:
Both being extrapolations from about a week ago.
However gut wrenching today’s action may be it doesn’t leave a bearish chart:
Of course, that could all change with bitcoin in the bat of an eye, but the time to get bearish is not during vertical moves but when there is a trend that grinds on down slowly.
As a bear I see bitcoin as being fully valued and perhaps starting to get a little stale in the short term. A correction is therefore quite likely.
The same reason why bitcoin is not an inflation hedge is the same reason bitcoin is nigh on randomly priced. It can boom or crash at the drop of a hat. The only thing for sure is that if it were to crash heavily, that would be a great time to buy and a crash for this sort of asset is far more than the 25% it is for equities. Think 75%. This may be extremely pessimistic but the point is, if it ever does come back that much it will be a great time to buy, because just as when everyone says it’s going up forever is the top of a market, so when everyone says it’s the end, that’s the time to buy. That day may well come before the next halvening and I’m prepared to wait.Source