bitcoin continues to recover, defying the typical inflation playbook. This raises the question of whether cryptocurrency has quietly transitioned from risk asset to inflation hedge.
The leading cryptocurrency by market value is up 19% in just over a month, topping $80,000 on Monday for the first time since January. The rally comes as oil hovers around $100 and the Bloomberg Commodity Futures Index has jumped to its highest level in a decade, pointing to inflation in the making. Meanwhile, American consumer inflation expectations are rising.
In the standard playbook, this combination is considered bearish for Bitcoin. Rising inflation means the Federal Reserve is likely to keep interest rates high longer, while higher rates mean attractive returns on supposedly safe assets, such as U.S. Treasuries, and less incentive to invest in non-yielding assets like bitcoin. This logic has worked several times before, most notably in 2022, when the Federal Reserve aggressively raised rates to control inflation, partially catalyzing that year’s bitcoin crash.
this time it’s different
But this time, bitcoin doesn’t follow that script. Some analysts are clearly recognizing the disconnect, raising questions about the durability of the rally. Others say something more fundamental is happening.
“Macroeconomic signals remain divided, with commodities pricing in supply-side stress, while risk assets continue to trade higher. This divergence highlights a growing disconnect between asset classes and raises questions about the durability of the current risk environment,” analysts at prominent and veteran exchange Bitfinex said in a report shared with CoinDesk.
Inflation coverage
A different interpretation is gaining ground, suggesting a shift in the way BTC is used: from a risk asset to a hedge against inflation. And this interpretation is not just circumstantial but is supported by new capital inflows into spot ETFs.
Since March, the 11 U.S.-listed bitcoin spot exchange-traded funds have raised $4.45 billion in investment capital, nearly reversing the massive outflows during the fall that weighed on the spot price at the time. Most of these entries are seemingly bullish directional bets rather than the once popular non-directional arbitrage game, which has not lost favor with investors.
“The most interesting change is happening on the institutional side. Continued inflows into bitcoin ETFs point to a broader shift in how hedging is approached. Gold is no longer the default — digital assets are increasingly being considered alongside it, not after,” Ryan Lee, chief analyst at Bitget Research, said in an email.
Paul Howard, senior director at crypto liquidity provider Wincent, also sees bitcoin as a hedge against inflation and has a price target for it. “As a hedge against inflation and a highly liquid store of value, bitcoin possesses several characteristics that could support a 3.5x increase in price over the next three years,” he said in an email.
The view that BTC is a hedge against inflation is no longer limited to crypto circles.
Last week, Paul Tudor Jones, one of the most respected living macrotraders, the man who correctly called and traded the 1987 stock market crash, expressed the most direct endorsement of the bitcoin inflation hedging thesis heard from a Wall Street heavyweight.
“Bitcoin is unequivocally the best inflation hedge out there,” Jones said in an interview on the Invest Like the Best podcast. “More than gold.”
His reasoning is structural. Unlike gold, whose supply increases a couple of percent each year, bitcoin has a finite supply that can be mined. In a world where central banks have demonstrated a clear willingness to increase the money supply, own what they cannot print more of.
Don’t forget about actions
Here is the honest warning that the bullish inflation hedging narrative must take into account.
Right now, US stocks are on the rise, and that is offering positive signals for bitcoin and the broader risk complex, as we noted on Monday. In this environment, it is really difficult to draw a definitive conclusion that BTC has become a hedge against inflation and that the hedge supply, rather than the risk supply, is driving BTC higher.
“After a strong April, BTC started May on firm footing, topping $80,000 for the first time since Jan. 31. The move appears to be in line with equities, reinforcing a broader trend as BTC’s correlation with U.S. stocks rises back toward 2023 levels, indicating a renewed link to risk assets in general,” Singapore-based digital asset trading firm QCP Capital said in a market note.
The real test of the inflation hedge narrative comes when stocks go down. If bitcoin holds or rises during a stock sell-off, the narrative is confirmed. But if it falls along with stocks, the risk asset label will remain.
That proof has not yet come. Until then, the inflation thesis remains compelling.
