Crypto Is An Imperfect Hedge Against Inflation

I began my Wall Street career in the early 1980s, and that’s the last time I remember investors being as concerned about inflation as they are today. Back then we understood inflation had been triggered by the abandonment of the gold standard in 1971, supply-side shocks such as the 1973 oil embargo, misguided monetary policy and perverse government policies like controls on interest rates, wages and prices. The message for investors was clear: abandon stocks and bonds for gold and hard assets like real estate, invest in countries with stronger currencies like Switzerland, Japan and Germany, and don’t trust financial institutions.

Current inflation fears are different, and many investors doubt that the hedges from the 1970s are still reliable. Cryptocurrencies are an increasingly popular refuge for inflation-phobic investors, both the “digital gold” of Bitcoin and newer crypto assets designed not just to be inflation-proof, but to capitalize on rising prices. How attractive these new instruments are depends on what kind of inflation you fear.