Bitcoin has outperformed other financial assets this year, from around $40,000 initially to the current price of around $65,000.
Besides the impressive year-to-date (YTD) gains, BTC has also gained significantly over the past four years, making it a hedge against inflation and a depreciating dollar.
While speaking to CNBC’s Squawk Box, Anthony Pompliano, the founder and partner at Pomp Investments, noted that while the US dollar has lost 25% of its purchasing power in the last four years, Bitcoin’s purchasing power has increased by over 800%.
Last year, the US Federal Reserve started an aggressive hawkish policy as it raised interest rates severally. The hikes reduced interest in risk assets such as Bitcoin while increasing the value of the US dollar.
However, the hikes have not restored the dollar’s purchasing power, which was affected by skyrocketing inflation, which hit a 40-year high in 2023.
Bitcoin’s Growing Use Case as a Store of Value
Bitcoin has often been seen as a hedge against inflation and has an inverse correlation with the US dollar. According to Pompliano, Bitcoin was increasingly gaining popularity as a global store of value.
Pompliano gave the examples of Nigeria and Argentina, two countries that have been grappling with increased inflation.
Crypto adoption levels in these countries have increased significantly as investors seek to hedge against a depreciating currency.
The entrepreneur/investor also noted that Bitcoin’s value has grown considerably since the launch of spot Bitcoin exchange-traded funds (ETFs) in the United States. The ETF hype has seen BTC jump from $20K to record highs.
As investors await the next Bitcoin halving this month, the crypto community anticipates that more gains might be on the way.
Historically, the Bitcoin halving event has been accompanied by Bitcoin’s rally to record highs, and investors are awaiting a repeat of the same trend.
The US Federal Reserve is also expected to trim interest rates several times this year, which might drive demand for Bitcoin and consequently lead to gains.
Dollar Index Pumps To 5-Month High as Bitcoin Crashes 6%
Bitcoin faced increased selling pressure yesterday, dropping to $65K. The plunge comes as US factory data posted a positive outlook, leading to the dollar index increasing to the highest level since mid-November.
Bitcoin is down by 6% in the last 24 hours. The broader cryptocurrency market is also nursing losses, with the global crypto market cap dropping by 5.7%.
The US dollar index tracks the value of the US dollar against leading fiat currencies. The index topped 105 for the first time in more than four months, with the monthly gains nearly at 3%. With a strong dollar, dollar-denominated assets like Bitcoin tend to lose value because of reduced demand.
The other reason behind the inverse correlation between the US dollar and Bitcoin is that a strong dollar leads to financial tightening. This factor dampens the willingness of investors to take risks.
