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mYCharts - November 11, 2021

The New and Improved Inflation Hedge With Chris Dunn



When you ask someone the main reason why they invest, they are likely to respond with: “to grow my money, and beat inflation”. Over the past decade, inflation has been rather muted. Investors in equities have been handsomely rewarded with low interest rates, low inflation and great returns. 

However, the pandemic has changed everything. Inflation is rearing its ugly head due to supply chain constraints, labor shortages and a lot of demand from consumers as the world opens back up.   You can see here the obvious increase in the U.S. inflation rate recently, and how it compares to just a few years ago.  

US Inflation Rate since 2012

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This has left a lot of people scratching their heads as to why historical inflation hedges like gold have been weak performers compared to equities and cryptocurrencies like Bitcoin. Bitcoin has outperformed gold by a wide margin. Gold is actually down year-to-date, while Bitcoin is up over 100% year-to-date.

Bitcoin & Gold Price Year to Date

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So, what gives here? 

They do call Bitcoin “digital gold”, after all. So, are we in the face of a large behavioral shift where Bitcoin becomes the new and improved inflation hedge? I do think there are a few reasons why Bitcoin could be overtaking Gold:

1. Bitcoin has the same “scarcity” component as Gold. There are only 21,000,000 Bitcoins that will ever be in supply. If anything, it’s even more scarce. At this point, almost 90% of the Bitcoin supply is out there to be traded. 

Bitcoin Supply since 2010

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2. Bitcoin is a more practical asset to actually use in real life. You can divide it up infinitely, send it quickly, and not have to deal with any 3rd party to do so. Gold does have a few more limitations. 

3. Millennials and Gen Z are the newest investors on the block, and they’re much more likely to have an asset like Bitcoin in their portfolio. They don’t trust the financial system as much as prior generations did. 

4. Investors see more return potential with Bitcoin. Although gold has done well finding some momentum over the past few years, Bitcoins returns are absolutely outsized in comparison. In a low rate environment, finding these types of returns becomes even  more important.

Bitcoin VS. Gold Price since June 2014

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So, does this mean gold is out and you shouldn’t have it in a portfolio? I don’t think so, in fact, I have been accumulating gold over the years to have some diversification in my portfolio. It was obvious when the pandemic started, and inflation fears spiked, gold reaped some benefits.

I do, however, think that we’re seeing gold not perform as expected in the face of high inflation as investors are seeing opportunities in Bitcoin as something fresh, new and decentralized. A possibly “better” gold. That’s why I hold significantly more bitcoin in my portfolio than gold, and why I’m betting investors will do the same over the next several years.

The New and Improved Inflation Hedge With Chris Dunn

Chris Dunn is an early bitcoin investor, cryptocurrency entrepreneur, and one of the first YouTubers to create educational content for the crypto community. He is also the host of the We Talk Money podcast.

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