A burst of inflation in 2026 has reignited buzz that bitcoin and other cryptocurrency are a great hedge against inflation.
Bitcoin, the leading digital token, has a fixed supply; not true for the U.S. dollar and other government-issued fiat currency. Not surprisingly, you’ll find some of these proclamations on sites with a crypto focus.
Digital platform CoinDesk raised the notion during the brief bitcoin relief rally in the spring, as inflation was heating up after the war with Iran began on Feb. 28. The theory was that the uptick in bitcoin’s value then further promoted the inflation hedge narrative.
No so fast, says Paolo Pasquariello, professor of finance at the University of Michigan.
“I read on blogs that people recommend crypto as a hedge to protect yourself against inflation,” Pasquariello told me in phone interview.
“Absolutely not true. Crypto is a bubble of its own.”
Cryptocurrency is a popular “alternative” investment, especially with Gen Z and millennial investors.
He’s seen no evidence that cryptocurrency will provide any protection against inflation, as might be the case if a cryptocurrency’s value could be expected to climb at a much faster pace than the rate of inflation in the United States.
His recommendation is that everyday savers shouldn’t jump at tips they see on social media about buying bitcoin as an inflation hedge.
Why do you want an inflation hedge?
The reality is that no one wants to cut back on their standard of living. Everyone would prefer to be able to spend just like they used to and buy what they want. But how do you do that when everyday prices are high and climbing higher?
Naturally, people start talking more about inflation hedges when there’s an uptick. It can get a little funky. Buying art — yes, paintings and the like — became the big buzz when inflation was sizzling in the 1970s and early 1980s.
Sure, cryptocurrency didn’t exist 40 or 50 years ago, making a historical track record as an inflation hedge a bit tough.
Bitcoin, created in 2009, is a digital currency that can be used to buy goods or services with relative anonymity and without the need for a central authority, such as a bank or government.
Yet, Pasquariello maintains that cryptocurrencies do not have any intrinsic value. They’ve not succeeded yet at being universally adopted where many people use bitcoin or other cryptocurrencies as means of payment.
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“Do you get your salary amount in crypto? No,” he said. “Do you go to shop at Whole Foods or Trader Joe’s paying crypto? No.”
Pasquariello sees cryptocurrency as a speculative play for people who have extra money on hand — something that easily could go down in value when the economy takes a dive and wealthy people once again start watching their pennies. (As pennies have had periodic shortages, I suppose that’s true if they can still find any pennies in circulation.)