Bitcoin Or Ethereum: Which Cryptocurrency Is The Best Hedge Against Inflation?
OBSERVATIONS FROM THE FINTECH SNARK TANK
With the debunking of the delusion that inflation in the US economy is “transitory,” investors have become more serious about finding hedges against it. According to Motley Fool:
“The rate of inflation has been raising alarm among investors recently as the Fed has gone into a printing frenzy. There have been calls to stop the printing rate but so far, it has continued, causing inflation rates to shoot up.”
A growing chorus of voices have come out touting Bitcoin as a good hedge, including:
There are dissenting (or, at least, countering) opinions coming from the likes of:
What About Ethereum?
A study from a group of professors at various Australian universities looked at Ethereum as a hedge against inflation. The authors conclude that:
“Following the recent change in its transactions protocol, Ethereum displays a significantly lower net issuance rate of tokens than Bitcoin, achieved by destroying the fees associated with each transaction. In many cases, the amount of Ethereum burned outpaces the networks creation of new tokens, resulting in Ethereum potentially becoming the world’s first deflationary currency.”
The authors assert that this makes Ethereum a superior hedge against inflation—and a better long-term value store—than Bitcoin. The authors point to two reasons why:
There are skeptics to the Ethereum as inflation hedge rationale, however. Motley Fool pointed out:
“An important thing to note about the Ethereum 2.0 upgrade is that the goal is not to make Ethereum more scarce, but to bring down the gas fees and access to the network. In having each transaction burn the base fee, the network loses control over the supply of Ethereum, so while there may be times when Ethereum looks deflationary, it's also possible the cryptocurrency's supply could increase as well.”
The article goes on to quote Noelle Acheson, head of market insights at Genesis Global Trading:
"We see so much misinformation out there about how Ethereum is deflationary. Occasionally it is, but that's not the purpose."
Overall, Ethereum’s advantage over Bitcoin as an inflation hedge may have nothing to do with the supply of the cryptocurrency, and more to do with its utility for other purposes. Speaking on CNBC, Galaxy Digital CEO Mike Novogratz said:
“As bitcoin loses some of its appeal as a hedge against a devalued currency, ethereum is outperforming as its proponents see the potential in the solutions enabled by the underlying technology. People see Ethereum as a technology bet."
The Rising Crypto Market
Whichever side of the debate you lean towards, one thing is certain—inflation in the US and elsewhere is helping drive up crypto investing activity.
On the flip side of the coin, gold—which was the preferred method of hedging for inflation among investors—is no longer serving the purpose it once fulfilled.Source