Not an Inflation Hedge

You’ve probably noticed things have gotten more expensive lately. A dollar isn’t going as far today as it did a year ago.

One of the main reasons why people invest in risk assets is to make sure that the fruit of their labor keeps up with the pace of inflation. A dollar that you earned and saved in 2014 would be worth significantly less today if all you did with that money was put it in a savings account.

Financial risk is inevitable. Putting money in a savings account means you will deal with a hidden risk that erodes at your dollars slowly over time. Putting it in risk assets means that sometimes you will deal with risk in quick and uncomfortable ways that make you want to run back to the safety of slow risk.

Given this backdrop, it makes sense that one of the primary things investors want to hedge against is inflation. Investing is all about stories, and protecting your money is the oldest investing story there is. It started with gold in god knows when and has continued over time in different iterations.

Today’s story is Bitcoin. It was supposed to be the ultimate hedge against a falling dollar.

More money was printed in the last twelve months than the last 90 years combined. Buy Bitcoin. Money printer go brr. Buy Bitcoin. There can only ever be 21 million bitcoin. Buy bitcoin. It’s a store of value. Buy Bitcoin. Pay me in bitcoin. Dollars are falling. Bitcoin fixes this. Buy Bitcoin.

Well guess what? With inflation running at the highest levels in 40 years, bitcoin is in a 45% drawdown.

I’m not a Bitcoin hater. I own it and I’ve been adding on the way down. I bought more yesterday. But this idea that it is a hedge against an eroding dollar just isn’t true. Can we please stop pretending it is?