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Cryptocurrency as an Alternative Inflation Hedge?

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Author
Lee A. Smales
Category
Financial
Date Posted
2021/08/02
Date Retrieved
2022/11/23
Date Revised
Date Written
2022/11/23
Description
We examine the association of Bitcoin and other cryptocurrency returns with changes in inflation expectations forming a comparison with gold a traditional inflation hedge. After controlling for uncertainty in economic policy cryptocurrencies and financial markets we show that cryptocurrency returns are positively related to changes in US inflation expectations under a limited set of circumstances. However unlike with gold the identified relationship is only significant for short-term inflation expectations and when inflation or market-implied inflation expectations are below 2%. Moreover cryptocurrency returns tend to be lower on days with monthly CPI announcements and respond negatively to CPI surprises. Our results suggest that cryptocurrencies do not currently offer investors a viable alternative to gold in hedging inflation.
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JEL Classifications
G10 G14 E31
Keywords
Cryptocurrency Gold Inflation expectations Bitcoin Breakeven inflation rate
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Pages
23
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URL
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4284358
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