The Covid-19 pandemic has impacted the economy in many ways. Disrupted supply-chains, pent-up demand, and rising wages – all this results in raging inflation, which is currently hitting its highest level in recent years.
Not only inflation is on the rise; Bitcoin (BTC) -1.15% - has also seen its value rise to all-time highs, above $69,000. According to Bloomberg economists, it is no coincidence that these two highs are linked. "Our model shows that for bitcoin, the importance of inflation and hedging against uncertainty become more important drivers over time, accounting for 50% of price moves in the latest cycle relative to 20% in 2017." (Business Insider, 2021)
Michael Saylor, CEO of MicroStrategy (MSTR) +0.25%, who is a true believer of Bitcoin, believes that that what makes Bitcoin a good store of value is its fixed amount of 21 million coins. Currently there are about 19 million bitcoins that have been mined since it was created. The data suggest that 4 million of them could have been burned, lost, or even forgotten about.
According to Bloomberg economists, Björn van Roye and Tom Orlik, the rising demand for Bitcoin can be also spurred by the supply cap and increasing price of the crypto. Roye and Orlik estimate that about half of Bitcoin’s recent return can come from market exuberance and momentum traders, that are driven by the still increasing price, which is comparable to other risk assets, like for instance stocks.
"From July 20 to October 8, the dominant factors affecting bitcoin were market exuberance and fear of inflation," said the economists. (Business Insider, 2021)
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*Stock percentage taken on 12.11.2021 at 12:15.
*Fox, Matthew (11. November 2021). Business Insider: Roughly half of bitcoin's recent returns are driven by fears of rising inflation, Bloomberg economists estimate. Last viewed on 12.11.2021 on https://markets.businessinsider.com/news/currencies/bitcoin-price-increase-driven-rising-inflation-fears-speculation-market-momentum-2021-11
