Bitcoin’s Value Rises on Dollar Weakness, Not Inflation, NYDIG Report Finds
Key Takeaways:
- NYDIG's Greg Cipolaro disputes Bitcoin's role as an inflation hedge.
- He argues Bitcoin's price reacts more to inflation fears than to actual inflation.
- A weakening dollar and high U.S. debt sustain Bitcoin's appeal
A report from NYDIG Research, published on October 24, challenges the prevalent thesis that Bitcoin serves as a direct hedge against inflation. Instead, it was found that the cryptocurrency’s price demonstrates a stronger correlation to the weakening of the U.S. dollar, a behavioral pattern it shares with gold.
Bitcoin Labeled as a Liquidity Barometer
Greg Cipolaro, NYDIG’s Global Head of Research, characterized Bitcoin not as a consistent inflation hedge but as a barometer for global market liquidity.
While inflation—the general increase in prices that erodes purchasing power—is often cited as a primary driver for Bitcoin adoption, the report details a more nuanced relationship.
Cipolaro’s research indicates that the correlations between Bitcoin and inflationary measures are both weak and statistically inconsistent.
Consequently, it was determined that inflation alone does not reliably propel Bitcoin’s price. A more significant factor is market expectation. Cipolaro noted that anticipated inflation exerts a slightly stronger influence on Bitcoin's value than actual, realized inflation.
Investor movement into assets like Bitcoin often occurs in anticipation of future price rises, yet this relationship frequently dissipates once inflation materializes.
The analysis also draws a parallel to gold, an asset historically regarded as a safe haven.
It was observed that gold itself is an imperfect inflation hedge, exhibiting an inconsistent long-term relationship with consumer prices. Gold’s performance has been more reliably tied to periods of U.S. dollar weakness. According to Cipolaro, Bitcoin is now exhibiting this same dynamic.
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The sensitivity of Bitcoin to key macroeconomic factors, including interest rates and money supply, was also detailed in the research. Like gold, which typically appreciates in a low interest-rate system, Bitcoin has developed an increasingly strong inverse relationship with interest rates over time.
Market Data Reveals Bitcoin Has Underperformed When Real Inflation Hits
Recent market data appears to corroborate Cipolaro’s analysis, demonstrating Bitcoin's underperformance during actual inflationary pressures
On October 10, a sharp market downturn exposed Bitcoin’s vulnerability.
Despite its reputation as an inflation hedge, Bitcoin fell under pressure when uncertainty spiked. When President Trump announced new trade tensions with China that day, panic swept through markets.
Over $19 billion in liquidations occurred within hours. Bitcoin’s price tumbled from the $124,000 range to about $104,000. Investors rushed to reduce risk rather than seek protection.
During this event, investors overwhelmingly moved to reduce risk rather than seek inflationary protection. Gold also suffered a severe decline, recording an 8% drop—its steepest in over a decade. These concurrent movements suggest that neither asset acted as a safe haven during a genuine liquidity crisis.
The context of a rising U.S. national debt, which a recent U.S. Congress Joint Economic Committee report placed at nearly $37.9 trillion, continues to fuel investor anxiety regarding both inflation and the dollar's long-term stability. This anxiety often drives capital toward alternatives like Bitcoin.
But as Cipolaro emphasized, Bitcoin’s rise in such moments often has less to do with inflation itself and more to do with a weakening dollar.
Without the dollar’s decline, Bitcoin’s momentum would likely fade. Its growth is less about inflation resistance and more about liquidity and confidence.
Jimmy Aki
Drawing from his background in economics, Jimmy has monitored blockchain development for years, firmly believing in its power to democratise finance. Beyond offering commentary on the latest crypto developments, he also spends his time analysing open-source codes of promising projects on GitHub. Jimmy holds Bitcoin and Ethereum.
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