CRYPTOCURRENCY AS A HEDGE AGAINST INFLATION

Abstract

This paper investigates the potential of cryptocurrencies, particularly Bitcoin and Ethereum, as viable hedges against inflation, in comparison to traditional assets like gold. In light of increasing global inflation, fueled by economic crises and expansive monetary policies, investors are seeking dependable strategies to safeguard their purchasing power. Cryptocurrencies have attracted interest due to their finite supply and decentralized characteristics, which could theoretically position them as suitable inflation hedges. Nonetheless, their significant volatility and speculative traits raise concerns about their reliability in fulfilling this role. This research consolidates insights from three prominent studies on the relationship between cryptocurrency and inflation, analyzing their methodologies and outcomes to evaluate the effectiveness of cryptocurrencies as inflation hedges. In summary, although cryptocurrencies may occasionally respond positively to inflation surges, their volatility and speculative nature hinder their ability to serve as consistent inflation hedges. The findings indicate that cryptocurrencies are currently more suited as high-risk speculative investments rather than reliable stores of value against inflation. Keywords :- Cryptocurrencies , Inflation hedge , Bitcoin , Volatility , Speculative investment , Purchasing power , Gold , Decentralization , Asset reliability, Economic crises