Why Bitcoin is an Inflation Hedge with Steven Lubka

 
 

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“They’re kind of these two different paradigms. One of them, you’re bearish on humanity: you think humans aren’t going to do well, we’re not going to produce stuff, we’re not going to be efficient. The other one, you’re bearish on central bankers and governments. And I know which one I’m betting on - I’m betting on humans.”
— Steven Lubka

SHOW DESCRIPTION

Steven Lubka is Managing Director of Private Client Services at Swan Bitcoin. In this interview, we discuss the true meaning of inflation, the different types of inflation, and why this means Bitcoin is the best hedge against monetary inflation. We also discuss the crazy alchemy of bonds.

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Given Bitcoin’s fixed monetary policy and increasing scarcity, it has long been promoted as being a reliable inflation hedge. It was one of Bitcoin’s principal utilities. Then the consumer price index (CPI) began to rise, Bitcoin’s price tracked downwards, and commentators rushed to dismiss the “inflation hedge” theory. This included Bank of America, Mark Cuban, and a wave of financial journalists.

However, inflation is a broad term used to describe a range of phenomena within an economy. Generally, people ascribe inflation to increases in the price of goods. Originally though, inflation has been defined as an increase in the money supply. These definitions matter in examining whether Bitcoin has failed as an inflation hedge. Have people used the wrong definition?

The failure of the inflation hedge theory relates directly to the decrease in Bitcoin’s price whilst the CPI has increased over the past few months. Changes in the CPI can be caused by increased money supply, but they are also driven by supply-side changes such as supply chain shocks resulting from the pandemic and more recently the war in Ukraine.

We are going through a period of money supply deflation as the economies of the world are starting to contract. Prices are going up whilst value is going down.

Yet, significant money supply inflation has occurred since 2008. Various measures of broad money show that the US Fed has increased the money supply around 3 times since the global financial crisis. Over the same period, Bitcoin was launched, established a price, and grew to a market capitalization on par with some of the world's major currencies.

As the money supply has expanded, Bitcoin’s value has increased. Now money supply is contracting Bitcoin’s price has decreased. So, has Bitcoin actually done what it set out to do and hedge against monetary inflation? Is the real issue people’s misunderstanding of the true meaning of inflation?

TIMESTAMPS

00:03:57: Introductions
00:08:34: Steven's background
00:13:14: Evolution of the definitions of inflation
00:17:38: What constitutes money
00:23:37: Separating the financial world from the real world
00:26:43: Accurate definition of inflation
00:33:10: The impact of misunderstanding inflation
00:36:45: Positive/negative views of inflation vs price increases
00:46:09: Causes of CPI increases
00:49:13: Bitcoin hedge against inflation
00:53:35: Bitcoin is reacting to a monetary contraction
01:05:11: Bitcoin's maturity and correlation to the macroeconomy
01:10:14: Conviction for the future of Bitcoin
01:12:05: Swap lines and the Fed's next move
01:16:41: The alchemy of bonds
01:22:05: Final comments

 

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SHOW NOTES

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Mentioned in the interview:

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