Satoshi Nakamoto created Bitcoin as an alternative to the fiat money system, and Bitcoin is increasingly embracing this role. What may be the clearest signal of Bitcoin-fiat competition could be that more billionaire investors are turning to Bitcoin as a hedge. Wall Street titans Larry Fink (BlackRock), Stanley Druckenmiller (Duquesne Family Office) and Paul Tudor Jones (Tudor Investment Company) have recently expressed skepticism about US monetary policy. They also recognize that Bitcoin is a modern-day gold substitute with real potential to protect their portfolios against inflation.

Yes, inflation expectations continue despite official reports 2.4% inflation Rate in September. These legendary investors warn that inflationary government policies and rising national debt could extend inflation beyond current forecasts. This would make Bitcoin, with its limited supply and decentralized structure, an attractive diversification asset.

short bonds

Speaking at Saudi Arabia’s Future Investment Initiative last week, Larry Fink reaffirmed his expectations that inflation will be permanent. BlackRock’s CEO believes that “we have more built-in inflation than we’ve ever seen in the world” due to the government’s inflationary policies. He added that we will not see interest rates as low as projected and only anticipate a rate cut of 0.25% this year. Such an environment is not the best environment for investing in government bonds. Inflation will erode real yields, and absent large rate cuts, existing high-yield bonds will not appreciate enough to outperform.

Stanley Druckenmiller takes an even more skeptical stance and is openly betting against the Fed. “The day the Fed cut 50 basis points, we opened bonds because we thought it was a mistake,” he said. report via Bloomberg earlier this month. The master investor is known for averaging 30% annual returns over three decades at Duquesne Capital. He now notes that while the Fed is pushing a restrictive narrative, the market is giving signals to the contrary. “Stocks are at record highs, gold is at record highs, GDP is above trend, there is a credit crunch, bank earnings and forecasts are looking good… crypto is going crazy. “We don’t see any restrictions,” he said.

Paul Tudor Jones addressed another persistent problem of the United States: the huge $35 trillion national capital debt This situation seems to be out of control. Billionaire hedge fund manager said CNBC says inflation risks will emerge after the November election as both Harris and Trump promise to increase spending and cut taxes, and the debt outlook worsens. Jones believes the only viable way forward is to inflate the debt burden and grow. This means keeping interest rates low and allowing inflation to rise, “inflating” the real value of the debt. This would ease the debt burden while avoiding immediate austerity measures, which are notoriously difficult for any politician to implement.

From this perspective, betting against bonds actually seems like a smart move. But does this mean that Bitcoin can truly fulfill its role as an inflation hedge?

Could Bitcoin be a safe haven asset?

The “digital gold” narrative is among the most famous narratives about Bitcoin. However, it is often opposed by those who argue that such a volatile asset cannot fulfill its safe haven role. This claim was valid in the past. Bitcoin volatility It fluctuated between 50% and 140% in 2017-2020 but has been on a steady downward trend since then. It has ranged from 23% to 65% since 2023, making it comparable to stocks and even gold. For context, the VIX (S&P 500 volatility index) has been at 16-33% in recent years. GVZ (CBOE gold volatility index) was between 10-30%. As Bitcoin adoption and market cap increases, analysts expect the cryptocurrency to experience less dramatic price fluctuation.

Skeptics also argue that Bitcoin’s performance in past crises casts doubt on its reliability as a safe haven. At the peak of US inflation in May-June 2022, when the Fed began aggressively raising rates, BTC fell 55%. At the same time, the S&P 500’s risk-averse stocks fell 15%, while risk-averse gold fell just 6%. Market stress often determines whether an asset is at risk or risk off. In this respect, Bitcoin failed the test.

However, it is important to consider factors specific to the crypto market. In May 2022, algorithmic Terra crashed dramatically, wiping out $50 billion in valuation. Although not directly related to Bitcoin, Terra’s crash caused significant reputational and financial damage to the crypto ecosystem, triggering a wave of bankruptcies. Another feature of Bitcoin is its four-year halving cycle, which affects its price dynamics. As investors become more informed, Bitcoin may be viewed as a standalone asset that is less affected by turmoil in the crypto market.

long bitcoin

Billionaire investors already seem to grasp the intricacies of Bitcoin and its potential as a hedge against inflation.

Once an outspoken skeptic, Larry Fink is now believes Considering that it is an alternative to other commodities such as gold, he states that “Bitcoin is an asset class in itself” and thinks that the application of this form of investment will be expanded. Under the guidance of Larry Fink, BlackRock’s bitcoin spot ETF has accumulated $28 billion in assets. words According to Robbie Mitchnik, the firm’s Head of Digital Assets, Bitcoin is “an emerging global monetary alternative.” It is a “scarce, global, decentralized, non-sovereign asset” with no country-specific or counterparty risk. Mr. Mitchnik thinks: These features make Bitcoin fundamentally different from risky assets.

Paul Tudor Jones is even more direct: “I’m long gold. I’m long Bitcoin. I think commodities are so ridiculously underowned, that’s why I’m long commodities.”

As for Stanley Druckenmiller, he famously said in 2023: “I don’t own Bitcoin, but I should have it.” It is not known whether the legendary investor owns any coins today. But he said cryptocurrency could play a big role in a renaissance because “people won’t trust central banks.”

Whether Bitcoin can truly protect against inflation is a question only time can answer. Unlike short-term investments, inflation hedges need decades to prove their effectiveness. So far, Bitcoin has outpaced inflation: Over the last decade, BTC has gained 22,208% while the US dollar has lost 33%. Whether this will continue is anyone’s guess, but Wall Street seems to have made up its mind.