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Inflation Fears: Bullish or Bearish for Crypto?

By Chris MacDonald – Nov 17, 2021 at 7:15AM

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Inflation is the topic on everyone's mind -- but what does it mean for crypto?

Bitcoin (BTC -0.53%) has been called everything from "digital gold" to the best hedge against inflation. But how will it truly fare now that higher inflation has arrived? Crypto-focused Fool.com contributor Chris MacDonald and The Motley Fool's Eric Bleeker discuss how they believe Bitcoin may be affected by recent inflation data in this clip from "The Crypto Show" on Backstage Pass, recorded on Nov. 10

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Eric Bleeker: Let's start with inflation fears. With the cryptocurrency space, a big part of people investing in Bitcoin itself is the fact that there is a fixed supply. We can't discount inflation. I think in the interim, Bitcoin is going to move more in line with other asset classes.

If there is a big risk off, you're probably going to see Bitcoin sell-off regardless of the reason for that. But over the long run, something like persistently high inflation lends to a bit more of a bitcoin bull thesis.

When you see numbers like today, I asked someone in the crypto space, what catches your eye?

Chris MacDonald: I think the inflation that we're seeing right now probably is a net positive for the crypto space.

Like you mentioned, Bitcoin is non-inflationary. It's a non-inflationary token. We're going to talk about some other tokens that fit that profile later on. But for Bitcoin, specifically, rising inflation, rising asset prices in general is a good thing.

I think there's also a thesis out there that Bitcoin is digital gold, or that's how it's being referred to right now. As a market hedge, if you're thinking that inflation will be persistent and you're thinking that that will lead to bond yields going higher and equities going lower over time, or at least those of highly sensitive growth stocks -- then the crypto space is one, especially for Bitcoin or other non-inflationary tokens, is a space where these assets could potentially benefit from that environment relative to, let's say, larger cap or more speculative growth stocks. There's definitely that thesis that's there right now. I think that's probably one of the drivers behind, like you said, Bitcoin being at or near all-time highs right now, it's actually been over, it's pretty incredible.

There are a lot of catalysts for Bitcoin, but inflation is something that from a macro level that we always want to keep an eye on, for sure, as Foolish investors.

Eric Bleeker: I think narratives really matter.

I specifically put on the slide one of the statistics I pulled from the release, which was meat, poultry, fish, and eggs up 11.9 percent year-over-year. Whenever the over, under is on the number of new stories that will be about the cost of rising turkey prices, this Thanksgiving, I'll take the over. Because this is just things that are very visible for consumers. The more that association's built, that the specter of inflation leads people to associate that with Bitcoin, that's just going to be a demand driver over the long run.

Chris MacDonald: I think there's definitely a case to be made for that for sure. Like you said, the cost of it, a Thanksgiving turkey, that's going to be something everyone is going to keep an eye on. [laughs] The cost of Bitcoin right now it's the same thing.

Eric Bleeker: It should be noted too, the other side of this would be that people watching the show probably heard transitory as a word associated with inflation.

That supply chain disruptions are causing a bit more -- you know, that used cars are in demand partially because of semiconductor shortages in the auto space, and meat and poultry is related to supply chain backups. Especially, I'm sure a lot of people have seen there's I think over 111 container ships stuck outside the Port of Los Angeles.

There's multiple schools of thought on this, and it's not necessarily-- we still see yields stubbornly low in spite of this. There's still a lot of debate around this overall issue, which should be noted.

Eric Bleeker owns shares of Bitcoin. The Motley Fool owns shares of and recommends Bitcoin. The Motley Fool has a disclosure policy.

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