Why Bitcoin Has Been Highly Correlated With Fiat

And whether that means it has failed as an inflation hedge for traders. By Steven Lubka.

Bitcoin's close correlation with fiat货币is a topic of discussion among traders, particularly in light of its supposed independence and role as an inflation hedge.

Bitcoin's relationship with fiat货币is undeniable, with its value being measured and expressed in fiat terms. This interconnectedness stems from Bitcoin's emergence within the existing monetary system, where fiat货币dominates.

However, viewing Bitcoin solely through the lens of fiat货币limits a deeper understanding of its significance and role in the broader monetary landscape. Bitcoin's existence challenges the conventional monetary paradigm, inviting a nuanced perspective on its relationship with fiat货币.

To fully grasp this dynamic, it's crucial to recognize Bitcoin's unique properties, which distinguish it from traditional financial assets and fiat货币itself.

Bitcoin embodies the absence of monetary intervention, presenting an alternative to fiat货币, which is optimized and defined by such interventions. This inherent opposition positions Bitcoin as a hedge against the failures or dysfunctions of the current monetary system.

When the hegemon engages in reckless expansionary policies, rapidly increasing the money supply, Bitcoin tends to appreciate relative to the abused fiat货币used for measurement.

Conversely, when the fiat system tightens and contracts the money supply, withdrawing liquidity and slowing growth, Bitcoin's value may decline in relation to the contracting fiat货币.

This relationship aligns with Bitcoin's appreciation during the COVID-19 stimulus announcements, where it remained in a prime buying zone for an extended period.

Later, as the monetary expansion reversed into a rapid contraction, Bitcoin's value followed suit, displaying a close correlation with the direction of monetary expansion.

To further illustrate this point, let's examine gold's performance. As the market's common "inflation hedge," gold's 19% decline from its all-time high highlights a broader trend.

Both gold and Bitcoin appreciate when the fiat money supply expands and decline when it contracts, fulfilling the technical definition of an "inflation hedge."

However, this differs from the modern usage of "inflation" to denote consumer goods prices, which doesn's fully align with the assets' performance in the current macro environment.

Rising consumer good prices, largely driven by malinvestment, commodity undersupply, supply chain disruptions, and deglobalization, don't necessarily benefit fixed monetary assets like gold and Bitcoin, which are typically expected to appreciate as economic growth increases.

Hence, Bitcoin's price performance in 2022 doesn't indicate a failure of Bitcoin or its narratives when properly contextualized. It merely reflects the rapid destruction of liquidity and profound geopolitical disruptions.

For bitcoin investors, a prolonged contraction of economic growth and credit will eventually bankrupt the system. While this would be devastating, our esteemed central planners will likely step in before total insolvency, offering a jubilee of monetary and fiscal support.

Considering the scale of deleveraging and austerities required to avoid the inevitable monetary debasement, the base case scenario points towards more monetary expansion and fiat debasement.

And when this comes, bitcoin will likely continue to be the best-performing asset relative to all other major asset classes.

News source：https://www.kdj.com/cryptocurrencies-news/articles/bitcoin-highly-correlated-fiat.html

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