Bitcoin, the world’s largest cryptocurrency, barely missed marking a significant six-figure milestone when adjusted for inflation, despite reaching an all-time high of over $126,000 in October, according to Alex Thorn, the Head of Research at Galaxy. The adjusted price, taking into consideration the year 2020’s inflation rate, indicates Bitcoin did not cross the $100,000 mark, he elaborated.
The Adjusted Peak Price
Thorn highlighted that the adjusted peak price for Bitcoin amounts to $86,794, when taking into account the changes in the Consumer Price Index (CPI) repetitively with each inflation print since 2020 to date. CPI is comprised of the prices of a range of services and goods. It is calculated by the United States’ Bureau of Labor Statistics (BLS) to keep track of changes in consumer habits. The CPI has an important influence on the purchase power of consumers.
Declining Dollar Value
The BLS reported in November that the CPI has witnessed an increase of approximately 2.7% over the previous 12 months, without seasonal adjustments. This rise has resulted in the U.S. dollar’s purchasing power decreasing, losing close to 20% of its value since 2020. Currently, the cost of goods in the marketplace is 1.25 times what it was in 2020. Hence, a dollar today can only purchase around 80% of what it used to buy back in 2020, as indicated by the CPI.
US Inflation on the Rise
During the ongoing COVID-19 pandemic situation, inflation in the U.S has surged above 9%, considerably higher than the Federal Reserve’s 2% target. Coinciding with this, the Dollar Currency Index (DXY) has shown signs of a rapid decline this year. The DXY, which compares the U.S dollar with other major global currencies, has dropped by 11% since the start of the year to 97.8.
The index reached a three-year low of 96.3 in September and has been following a downwards trajectory since October 2022. As a result, the U.S dollar is losing ground against other currencies, leading to the advent of the debasement trade.
Understanding Debasement Trade
The debasement trade is an investment strategy in which investors purchase assets that they expect will retain or increase their values even when the fiat currency loses its purchasing power. In particular, Bitcoin and other cryptocurrencies have seen increased adoption as a part of the debasement trade strategy, given their inherent design that guards against inflation.
Bitcoin in the Face of US Inflation
While the general public grapples with the declining value of the dollar, Bitcoin continues to present itself as a viable hedge against inflation, becoming increasingly popular among institutional investors. The interplay between the U.S inflation rate and Bitcoin’s price underlines the potential of Bitcoin as a store of value.
Summary
In conclusion, Bitcoin’s adjusted price for inflation during 2020 suggests the cryptocurrency didn’t cross the $100,000 threshold. Simultaneously, the declining value of the dollar and increasing inflation rates have influenced the adoption of cryptocurrencies like Bitcoin initiating a debasement trade. With rising inflation rates and a declining dollar value, Bitcoin’s role as a viable hedge against inflation only continues to strengthen.
