Why Bitcoin is an Inflation Hedge with Steven Lubka - WBD533

Steven Lubka is Managing Director of Private Client Services
at Swan Bitcoin. In this interview, we discuss the true
meaning of inflation, the different types of inflation, and
why this means Bitcoin is the best hedge against monetary
inflation. We also discuss the crazy alchemy of bonds.


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Given Bitcoin’s fixed monetary policy and increasing
scarcity, it has long been promoted as being a reliable
inflation hedge. It was one of Bitcoin’s principal utilities.
Then the consumer price index (CPI) began to rise, Bitcoin’s
price tracked downwards, and commentators rushed to dismiss
the “inflation hedge” theory. This included Bank of America,
Mark Cuban, and a wave of financial journalists.


However, inflation is a broad term used to describe a range
of phenomena within an economy. Generally, people ascribe
inflation to increases in the price of goods. Originally
though, inflation has been defined as an increase in the
money supply. These definitions matter in examining whether
Bitcoin has failed as an inflation hedge. Have people used
the wrong definition?


The failure of the inflation hedge theory relates directly to
the decrease in Bitcoin’s price whilst the CPI has increased
over the past few months. Changes in the CPI can be caused by
increased money supply, but they are also driven by
supply-side changes such as supply chain shocks resulting
from the pandemic and more recently the war in Ukraine.


We are going through a period of money supply deflation as
the economies of the world are starting to contract. Prices
are going up whilst value is going down.


Yet, significant money supply inflation has occurred since
2008. Various measures of broad money show that the US Fed
has increased the money supply around 3 times since the
global financial crisis. Over the same period, Bitcoin was
launched, established a price, and grew to a market
capitalization on par with some of the world's major
currencies.


As the money supply has expanded, Bitcoin’s value has
increased. Now money supply is contracting Bitcoin’s price
has decreased. So, has Bitcoin actually done what it set out
to do and hedge against monetary inflation? Is the real issue
people’s misunderstanding of the true meaning of inflation?