Bitcoin is Not a Hedge

You’ve perhaps heard certain Bitcoiners express that Bitcoin is a “hedge” - against the fiat Ponzi, inflation, or any number of issues inherent to our current economic and societal turmoil.

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This is a useful maxim at times and in certain contexts, as having Bitcoin will prove handy if your local currency collapses. You could similarly view Bitcoin, as Greg Foss does, as “an insurance policy.”

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But I think Parker Lewis, who coined the phrase “Bitcoin is not a hedge,” is onto something.

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We saw just in the last several days that as financial markets plummeted across the world (hint, central banks do not bring with them financial stability), that Bitcoin too tanked in price, dipping below $50,000. That is a 33% drop from its all-time higher earlier this year as we’ve largely anticipated an exciting bull run.

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So if Bitcoin dumps in unison with everything else, how can it be a hedge against… everything else.

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Well, a few points on this.

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First, Bitcoin wasn’t designed to be a hedge, it was designed to serve as a better form of money than we’ve inherited over the last 50 years. That’s important to keep in mind.

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Second, it is likely that eventually Bitcoin will become uncorrelated from other assets in uncertain times as more people understand it for what it is. At less than 1% global adoption as a savings vehicle (so, excluding speculators) we can’t ask more from this technology than is reasonable in the short term.

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What Bitcoin is, as Parker Lewis more eloquently describes, is a monetary solution to many existing monetary problems.

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No politician can over-promise in Bitcoin terms because, unlike printable fiat money, it is a finite resource. If you don’t have it, you can’t spend it.

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This alone resolves many wars, broken incentives attributed to the welfare state, and so much more.

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Bitcoin is or will be a hedge for some people at certain times, but to compartmentalize it as exclusively so is to defang the beast that could once and for all defeat the dragon of central bank monopoly on financial power.

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Ones’ thesis on Bitcoin may not be altered one bit by this new frame of reference, but perhaps it will provided a renewed vigor for the fight at hand and a stronger sense of hope for the future.

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