Bitcoin's "digital gold" narrative might be its best card in an increasingly competitive game. (Unsplash, modified by CoinDesk)
It’s pretty much guaranteed at this point that higher inflation is coming.
The Federal Reserve, which has already printed about $3 trillion of new money this year, is now in a bid to revive the economy. Higher inflation also typically happens when a country gets , as is now the case in the U.S.
“We’re at a moment where you may see some inflation,” Federal Reserve Bank of St. Louis President James Bullard .
The trend could be good for bitcoin, which many crypto investors believe can serve as a hedge against inflation, a digital and perhaps more portable alternative to gold. As by , the trend has been clear since roughly 1980, when the share of wealth held by the world’s richest 0.1% of people began a decades-long rise from about 5% to more than 20%.
But increasingly, it looks like bitcoin-as-inflation-hedge might be the cryptocurrency’s most compelling investment narrative, and not necessarily as the for perpetuity, as many so-called bitcoin maximalists have argued.
Last week, bitcoin’s “dominance” – the market value of all bitcoins in existence, divided by the market value of all digital assets – fell to 57%, from 68% at the start of the year, according to CoinMarketCap.
The primary challenger, of course, is ether (), the native token of the Ethereum blockchain, which has exploded with activity this year as the primary venue for the fast-growing realm of decentralized finance, or DeFi. Ether’s market value has climbed to about 12% of the industry total, from about 6.8% at the start of the year.
“The rivalry between Bitcoin ‘maximalists’ and Ethereum enthusiasts has become more polarized in recent months, with each side latching on to narratives that best support the asset to which they have pledged their allegiance,” Kevin Kelly, co-founder of the market-analysis firm Delphi Digital, wrote this month in report. And recently, Ethereum has been “playing catch-up to its ‘digital gold’ counterpart.”
Bitcoin is again taking cues from traditional markets.
The leading cryptocurrency is dropping alongside stocks, with soaring coronavirus cases across Europe and other parts of the world threatening to snuff out the nascent global economic recovery.
Bitcoin is currently down over 2% at $10,650 and may suffer a more significant drop if the risk aversion worsens, boosting demand for the safe-haven U.S. dollar. The cryptocurrency tanked 40% on March 12 as the global stocks’ coronavirus-induced crash triggered a global dash for cash.
The recent rise in the outflow of coins from miner wallets to exchanges could add to bearish pressures around bitcoin.
On Sunday, 784 BTC were transferred to exchange wallets from miner wallets – significantly higher than the 30-day average daily outflow of 265 BTC, according to data source Glassnode.
– Omkar Godbole
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