Bitcoin is a hedge against deflation, and not inflation | Comparison between BTCUSD and XAUUSD

The liquidity infusions at a massive scale by the central banks increase the risk of Deflation. Gold was the hedging instrument during the 2008 crisis. Bitcoin appears to be a hedging instrument in the ongoing crisis.

The last recession occurred when the US Housing market started collapsing in 2007. The tremors were felt in the financial markets all over the world in 2008. The central banks had to resort to stimulus packages and bailouts by going on a money printing spree. 

The situation faced by the world economy now is somewhat similar to the one in 2008. Albeit the cause and the effect are different this time. However, the central banks are resorting to the same measures they adopted twelve years back.

 

Bitcoin’s principle is the same as Gold-protection against the reducing value of fiat

Bitcoin was not around in public during the 2008 recession. If we look at the XAUUSD weekly chart and the period from the beginning of January 2008, we can witness the rise.

The reason was the perceived nature of Gold as a hedge against the reducing value of fiat. And that is precisely the core principle of Bitcoin.

Fiat money refers to the currency in circulation. In simple terms, its value reduces when there is too much money in the economy. Such a situation arises when the central banks print excessive money and infuse into the system. This situation is known as Deflation.

 

Bitcoin is a hedge against Deflation, not inflation!

Although, several of Bitcoins supporters argue that BTC is an excellent hedge against inflation. However, that is entirely baseless, as of now! Only time can tell whether BTCUSD withstands inflation.

Here is the comparison between the performance of BTC and XAUUSD on a weekly timeframe

People investing in BTC currently are in a frenzied buying mentality. And that can be disastrous. BTC can, in a short span, destroy the entire capital. Therefore, it is essential to understand Bitcoin’s nature and only invest in BTCUSD as a long-term investment.

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