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Comment by dragontamer | Hacker News Reader

> and hedge against inflation is not one of them

BTC lost value through the great inflation and is only gaining value today now that inflation is down to 3%.

Sounds like a pretty bad hedge against inflation. People need to stop repeating this lie.

EDIT: If people need an inflation hedge, buy i-bonds first, and then TIPS after you max out. These are indexed against CPI, so the more inflation happens the more i-bonds/TIPS make.

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Last time I checked overall BTC has gone up in value over the last 5 years and by a large margin unless you bought at all time highs. The statement it lost value through inflation doesn't even make sense.

"Inflation Hedge" means you have an correlation with Inflation. Or in statistical terms, reason to believe that r-value is positive. (ie: if Inflation is +9%, then inflation-hedge is positive, or even close to +9%, though it could be +18% or whatever. If inflation is -5%, then an inflation-hedge should also be -5% or otherwise negative)

Anyone claiming "inflation hedge" needs to tell me how they calculated this correlation.

Inflation is a lagging indicator. Bitcoin gained in 2020 and early 2021 when debasement happened and the supply of money increased. That debasement takes time to show up in price data, and then even longer to show up in headline inflation, which is a 12 month average.

TIPS and i-bonds are limited in their role as a hedge. Sure, you are exactly compensated for inflation on the capital you invest. However, without the ability to have any leverage, you can't actually use this as a hedge against other capital which has exposure to inflation but which couldn't be converted.

It sounds like you're trying to tie BTC to the monetary supply. BTC goes up when M2 increases, and possibly goes down when M2 goes down?

So why is BTC going up when M2 is shrinking for the past 18+ months?

https://fred.stlouisfed.org/series/WM2NS

Not sure, it is just a correlation not an iron rule and definitely not the only influence. The shrinking here of m2 is much much smaller than the previous increase was as well.

> it is just a correlation

Correlation of what, to what, and what's the R-value? Across what time frame?

https://en.wikipedia.org/wiki/Correlation

These words normally have _meaning_ ya know. They're not just things you toss out in a meaningless online discussion.

There are certainly time frames where change in global m2 money supply and change in bitcoin's price over say 12mo would have a positive R value. That isn't the point I am making. If the amount of money available goes up, then one would expect that the price of other things, all else held equal would also go up. It would be quite strange for bitcoin or any other commodity to behave differently consistently and over a long period.

> If the amount of money available goes up, then one would expect that the price of other things, all else held equal would also go up

And if the amount of money available goes down for 18 months... then what?

https://fred.stlouisfed.org/series/WM2NS

An "inflation hedge" goes up when inflation is up, and down when inflation is down. But in practice, BTC is closer to down when inflation is up, and up when inflation is down.

It isn't a perfect inflation hedge, no one is claiming that. You are cherry picking a single interval where the correlation is negative. If you zoom out, you'll find that the correlation is mostly positive. Past correlation is also not predictive of future results.

CPI has typically not been keeping pace with the amount of money creation afoot [0]; attempting to index against the CPI seems like a way to end up with low quality investments. IMO if an asset isn't comparable to the M2 it is quite questionable; I'd expect inflation hedges to act more like gold, on average showing "real" returns.

Seems likely the time horizon you're talking about is too short in this case. The last few years have been a bit weird by the metrics - it looks like something has changed in the financial plumbing. But the USD has a policy of being an unreliable measure of value and Bitcoin does not, so there is a pretty good chance that Bitcoin will hold its value over time. The price hasn't been trending down (yet?).

Although I'd advise people not to choose their investments based on advertising. People don't really advertise good financial deals. They use the ad budget to get in on the deal.

[0] https://research.stlouisfed.org/publications/economic-synops...

> IMO if an asset isn't comparable to the M2 it is quite questionable;

M2 has shrunk for the last 18 months. Anything correlated to M2 would have similarly shrunk for the last 18 months... which is basically nothing being discussed in this topic.

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"Inflation Hedge" is traditionally CPI, maybe PCE if you're being fancy. There's a few other inflation indicators but they're all within a magnitude (and well correlated) to CPI / PCE.

Unless you expect people to cash out their life's savings every 12 months, I don't see why anyone should care if an asset's price is correlated to the last 18 months of the M2. It just needs to be something that tends to do better than the M2. If it isn't doing at least that well, sell out and buy something that is.

And "Inflation hedge" has been redefined to be something that isn't very useful for investing. You'll notice I'm talking about prices going up due to money creation, not inflation. I choose my words carefully there, we don't have a pithy term for that effect as far as I know.

> Unless you expect people to cash out their life's savings every 12 months, I don't see why anyone should care if an asset's price is correlated to the last 18 months of the M2

So you're saying that your "inflation hedge" has no appreciable correlation to inflation or monetary supply over 18-month periods?

> And "Inflation hedge" has been redefined to be something that isn't very useful for investing.

"Inflation Hedge" is just bullshit. Its easy enough to call out. If you want a real reason to invest, then tell me the real reasons. Don't make up bullshit terms.

I'm specifically not calling anything an inflation hedge [0]. I don't consider anything you'd accept as inflation in my investing. I'm looking at money creation.

And you are correct that I also disregard correlations over 18 month periods. I suspect most small-timers do. It isn't clear to me why that would matter.

[0] To clarify what I meant a few comments ago, I meant what most other people would call an inflation hedge in common parlance - ie, something that can't be printed. I don't think they'd be using the term in a way that has an actual definition though, and I don't expect that sort of asset to have anything to do with the inflation rate when it comes to price performance.

> I meant what most other people would call an inflation hedge in common parlance

In 2021, "Inflation Hedge" meant that if inflation would happen, BTC would protect you from it. Inflation then happened, and BTC failed to protect anyone. Now that its been disproven, people are changing the term "inflation hedge" to mean things that they never meant before.

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If it takes over 18-months for an "Inflation Hedge" to protect you from inflation, I think I can safely say it fails at its job. (A hedge is supposed to protect you from the event, so that you can reallocate your money from the hedge into all the assets that drop during said event).

Now if you want to argue to me that "inflation hedge" never meant anything with regards to inflation or hedging, then sure, we're both in agreement there. Its a meaningless term inside of the cryptocoin community.

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Meanwhile, the people who actually were worried about Inflation bought TIPS, and then sold TIPS during their height (making money, that they could use to purchase other assets). That's what a hedge actually looks like.

I mean, we (probably) do agree and this is an exercise in talking past each other - but the issue here is that Bitcoin appears to be preserving its value and, all else equal, something that preserves it's value is going to appreciate in price faster than the inflation rate [0].

So if someone is worried about monetary creation devaluing the currency, based on what we've seen so far, they'd be doing well to buy Bitcoin. Now you are correct that that isn't an inflation hedge. But typing out all that is a lot of words so unless someone invents a new short phrase to describe "monetary creation devaluing the currency" people are going to keep misusing the word "inflation" to mean that. And, frankly, that is what the word should mean in monetary contexts; the technocrats can go hang. Hopefully not literally, but they seem on a mission to upset people.

[0] Assuming the situation snaps back to pre-COVID trends, anyway. At the moment there is a lot of excitement and the M2 is going down.

You act like BTC is only available in the US.

Anti-crypto people these days have to do a lot of mental gymnastics to avoid the truth that Bitcoin (now called Bitcoin Cash) has worked perfectly for over a decade with almost no downside if you just buy slowly over time and hold/spend.

Bitcoin Cash works great and has for over ten years.

Bitcoin Cash as a standalone thing has been around for a bit over six years, not over ten.

Bitcoin cash isn't real Bitcoin.

People saying "inflation hedge" are at a minimum, English speakers, and secondly, are likely Americans who were concerned about the 9%+ inflation of a year or two ago.

Alternatively, maybe they're British but the great inflation affected both sides of the Atlantic. Then again, Coinbase is an American company providing American services, so I think its safe to say that this topic is American focused.

Coinbase is an American company, but operates globally. From wikipedia:

"Coinbase operates as a remote-first company and has no physical headquarters.[5] As part of its SEC filing to go public, the company reported 43 million verified users, 7,000 institutions, and 115,000 ecosystem partners in over 100 countries."

As for inflation, let me refer you to this post (and thread), a favorite of mine.

https://news.ycombinator.com/item?id=26238410

Young adults aren't trying to hedge inflation. They're trying to make a life in a world that recommended poor degree choices and lots of student debt, people increasing in their country faster than housing, a nation and state that taxes them to fund feelgood policies, and that tells them daily that billionaires are the reason they don't have enough money. That's rough.

RemindMe! 5 years

Or you could just look at the last 15 years and stop pretending that BTC is anything new.

If BTC were a person, it'd be entering high school and thinking about a student-driver license. We've got an extensive history to draw upon now.

A history of bitcoin capturing orders of magnitude more value over basically any 4 year period, yea, the records pretty good for an emerging money.

That doesn’t mean it will continue to rise in the future. It also isn’t tied to anything outside of these very expensive exchanges. I can’t use bitcoin to buy a candy bar or pay someone to fix my toilet. Nor is there intrinsic worth to it.

Value is subjective, not intrinsic. It is guarenteed to rise like everything else of limited supply; the value of fiat currencies must necessarily decrease over time in their operation, because the base monetary unit can only be issued as credit which must be paid back at interest. Were the value of fiat currencies to increase in any meaningful sense, it will result in widespread defaults in the banking sector.

> It is guarenteed to rise like everything else of limited supply

They aren't making any more VHS copies of Toy Story, which IIRC was estimated to be ~21 Million copies of tape.

You are being pedantic, bitcoin has monetary qualities that put it in contention in this regard.

Okay.

* Zimbabwean dollars aren't being made anymore.

* Lunacoins / Terracoin isn't being made anymore.

Do these have any reason to go up? And they are (were) real currencies / cryptocoins.

> * Lunacoins / Terracoin isn't being made anymore.*

Actually, it is. There is even activity in the repos.

https://github.com/terra-money

People still trade it too:

https://coinmarketcap.com/currencies/terra-luna-v2/

I don't agree with it personally, but just clarifying a fact.

I'm not talking about terra-luna v2.

I'm talking about v1.

Zimbabwean dollars foretell the fate of all paper currencies, they might have some monetary qualities, but they lack the important bits like hardness.

Lunacoins / Terracoin foretell the fate of all cryptocurrencies. They might have some monetary qualities, but they lack the important bits like hardness.

The problem with vapid statements is that I can just copy/paste your argument and change the words around... demonstrating how its a useless phrase all together.

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"Inflation Hedge" would be a truly useful thing. That's why it sticks, because people desperately want to prove BTC to be useful. Unfortunately, the stats just don't work out, so you see people twisting the meaning of "inflation" and "hedge" in this very thread.

"Hedges" are things that have high amounts of correlation. (Ex: Hedge on gasoline would be buying assets correlated with gasoline. Exxon, or maybe Brent Crude). And the r-value / correlations can be readily demonstrated. Either positive r-value or negative, it doesn't matter. The important bit is that there's a strong correlation (or anti-correlation).

Hardness is literally a monetary quality, its a moneys resistance to inflation. If the Zimbabwean dollar were to gain value it would be immediately printed into oblivion, exploited for all its worth. The same does go for basically every cryptocurrency, bitcoin is the only one whos total supply is fixed, reliably. Your ignorance of these monetary qualities and what role they play does not make it a vapid arguement.

Why is BTC so correlated to DOGE?

Why is there such a correlation between all cryptocoins and BTC?

Methinks your definition of "hardness" isn't as important as you think it is.

Other cryptos tend to track bitcoin because of increased demand from people who dont understand the qualitative difference between a quality product and scams. Bitcoin holds the majority of market share, and over time basically all of these loose 100% of their value. You should ask yourself what causes bitcoin to have a floor when its had 4 80+% drops in its lifetime.

I find it fascinating just how fixed everyone is on this topic. You are either for it or against it and will die trying to prove the other side wrong. We are just a few steps away from having a Holy War lol.

The difference is that only one side have, at one time, been on the other side. Until they saw the error of their ways.

The desperate rationalisation will only increase with each halving cycle. The oh-so-clever "tulips" joke is becoming increasingly tragic.

I believe Bitcoin is a bit more durable than a VHS, but this is a fun comparison nonetheless.

Fun as in buffoonery.

Why not? You could open a store and accept it as a method of payment.

It's funny cause normally we think of high-school aged student drivers as still kinda young and inexperienced. But yeah, now that you put it like that I guess 15 years is pretty ancient for a currency.

I’m not pretending Bitcoin is new. My comment was because of that fact. It’s the same old tired song and dance. Bitcoin goes up: “these idiot kids got lucky.” Bitcoin goes down: “about time those idiots learn their lesson! Bitcoin’s a scam!”

Bitcoin is undeniably volatile, but it is becoming less volatile over time and it continues to (on an investment period longer than a year or so) be a fantastic hedge against inflation.

Even if you buy stocks, the general consensus is that you should be looking at a longer timeframe to ensure you can handle any short-term losses.

> It’s the same old tired song and dance.

Yeah. "BTC Is an inflation hedge". Then BTC doesn't protect you from inflation. Then "Inflation hedge doesn't mean inflation or hedge, it really means..."

I'm tired of BTC community defining terms, and then redefining them when the statistics don't work out in their favor. I recognize that BTC community wants "number goes up", but just stick with that and be honest with yourself. Don't invent new bullshit terms for bullshit reasons that are discarded almost immediately.

> be a fantastic hedge against inflation.

Holy crap here we go again.

What is going to be different about the next five years vs. the past five years? The point is that inflation happened and the price of Bitcoin in USD went down. Why is that pattern going to change?

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