No, bitcoin is not a hedge against inflation. Just ask Ronald McDonald.

Introduction

Is bitcoin a hedge against inflation? I hear that a lot, but one should be wary of the sources of that argument.  They are a bunch of speculators on YouTube making that argument versus regular consumers making household purchases.  The consumer price inflation index does not incorporate speculation in its household shopping cart and nor should you.

I’d rather you defer to Ronald McDonald and a little rudimentary math.

The current exchange rate for a US dollar in terms of bitcoin is 0.00005 BTC.  According to data from OANDA, on 31 July 2022, the exchange rate was 1 USD = 0.00004 BTC, an increase of 25%.

The cost for a Big Mac meal is approximately $5.99, according to Zippia.com.  At today’s exchange rate, a Big Mac meal would cost you 0.000299 BTC.  Let us assume a month-over-month inflation rate of one percent and another 25% increase in the USD/BTC exchange rate (1 USD=0.00006 BTC).  By my back of the napkin calculation, the average cost next month for a Big Mac meal will run approximately $6.05.  The cost in BTC would be approximately 0.000363.

If bitcoin provided a hedge against inflation, the price in BTC would not increase, at least not in a month-over-month scenario.

Buying the Big Mac using BTC involves a currency exchange between BTC and USD.  Mickey Dees has to pay taxes and can’t do so with bitcoin.

But why has the price of your Big Mac gone up?  It has risen due to a change in the real economy, the real economy containing the interlinked labor, land, and other resource markets that produce your Big Mac.

The US currency that your BTC is rapidly exchanged for during a digital clearing and settlement process is nothing but a derivative of the value of the underlying products, goods, and services produced, where the supply of the currency that is imputed into production is manipulated by the central bank’s monetary policy.

Are Crypto Traders Ready to Lobby the Fed?

Money is political.  If cryptocurrency traders want digital assets to act as a hedge against inflation, they will have to effect monetary policy by lobbying the Federal Reserve System.  According to Forbes contributor Tiffany Lung, approximately 11% of Americans have invested in cryptocurrency.  I can’t say whether this population can be effectively leveraged as a lobbying group, but it could be worth testing the Federal Reserve System’s preference to avoid political arguments.

I have to wonder if there is room for legal strategy under the Federal Reserve Act or the Full Employment Act?

Alton Drew

24 August 2022

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