Bitcoin is rebounding again! Can the "hedging inflation" theory gain a foothold?

U.S. inflation continued to hit a nearly 40-year high, propelling bitcoin above $44,000 for the first time in a week, sparking discussions among investors about whether bitcoin can hedge against inflation.

Zhitong Finance was informed that on Wednesday, local time, the U.S. Department of Labor announced that the U.S. unseasonably adjusted CPI in December increased by 7% year-on-year, which is expected to increase by 7%. The previous value was 6.8%, continuing to hit a new high since June 1982. Bitcoin rose 3.3% to $44,085 after the data was released. Some investors forecast higher inflation, pushing riskier assets such as stocks higher.

"Inflation is in line with expectations, and the Fed may not need to accelerate policy tightening, which means the outlook for cryptocurrencies may be slightly better," said Michael Reynolds, vice president of investment strategy at Glenmede. Cash assets become more attractive."

Bitcoin is rebounding again! Can the "hedging inflation" theory gain a foothold?

Proponents of cryptocurrencies have long argued that bitcoin and other digital assets are a special asset class that can serve as a hedge against volatility in other areas of financial markets.

Other cryptocurrencies also rose on Wednesday following the release of U.S. inflation data. Ether rose nearly 5% at one point, and the Bloomberg Galaxy Crypto Index, which tracks the digital currency, rose nearly 4%.

"We're seeing another rally in risk assets," said Noelle Acheson, head of market analysis at Genesis Global Trading. That's because investors "believe Powell won't raise rates as the market expects because inflation is in line with expectations, not worse."

Whether bitcoin or other cryptocurrencies are a good hedge against inflation is still up for debate, despite some high-profile analysts and investors touting it. Some argue that bitcoin hasn't been around long enough to be certain that it can act as a hedge when prices rise, while Duke University professor and Research Affiliates partner Cam Harvey has long said bitcoin's moves are too speculative Assets are prone to periodic crashes.

"The jury is still out on whether bitcoin is a hedge against inflation, and only time will tell," said Austin Vincent, vice president of Gullane Capital.

Still, an analysis by Blockforce Capital shows that new retail investors have not flocked to Bitcoin since the Bitcoin crash in early December. To make matters worse, most short-term traders who are new to the market have shrunk their investments. Blockforce said the average price paid by these short-term traders is higher than the price of a single bitcoin.