Fears of inflation were long gone as the returns of world standards have increased to pre pandemic levels, such as ten-year US Treasury notes. ASX investors have a key interest rate-based concern about inflation.
If inflation goes too much above the target rate (or the US Fed’s target in the United States) of the Reserve Bank of Australia, central banks would have no choice but to raise interest rates to control inflation. This, in turn, may damage ASX share prices, particularly ASX growth shares, as investor returns for cash holdings can theoretically be higher (and safer).
As an important inflation hedge, gold was long proclaimed. And although it has not been perfectly performing in this position, long-term gold can reduce inflation impacts.
More ASX investors now wonder, can Bitcoin – so-called digital gold – work the way it does?
Since Bitcoin’s supply is small, and there is some reasoning behind Bitcoin’s hedging inflation, unlike US or Australian dollars. Although US Treasury rates have recently risen to 1.62%, the Bitcoin price decreased drastically.
Cam Harvey, who is an adviser to Research Affiliates and a professor of finance at Duke University. As Bloomberg reports, Harvey says Bitcoin hasn’t been in around for enough time to make a definitive call:
What’s going to happen to Bitcoin? It’s really unclear. The price is not been moved by the money-supply rule, it’s driven by other speculative forces. That’s why it’s multiple times more volatile than the stock market.
He adds that investors might not rely on Bitcoin to mitigate the effect of rising inflation by using volatile assets such as Bitcoin and other cryptocurrencies.
“The wood is inflationary and brightening,” adds Marc Chandler, Bannockburn’s Chief Market strategist, Global Forex. You have to judge if there is enough spark.”
Chandler sees ‘signals like price of petroleum, shipping or semiconductor costs,’ all on the rise as the world economy returns to gage inflation.
With regard to Bitcoin’s rapidly rising price, he says, “The high priests in the field of cryptocurrency search for every excuse to support. I’m still reluctant to believe B Bitcoin tells us anything about high-frequency economic variables.”
Whether ASX investors consider Bitcoin as an inflation hedge, it sounds like the jury is still out on this one.
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