Ask HN: Inflation is up, why gold and Bitcoin are down? | Hacker News Reader

Ask HN: Inflation is up, why gold and Bitcoin are down?

2 pointscft10 comments

Gold and Bitcoin were supposed to be anti-inflationary. However in the current 9.1% yoy inflation both gold and Bitcoin are down. Can someone explain this?

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Gold has an intrinsic value below which it cannot fall (due to industrial uses), but it is much lower than current price, and BTC has no intrinsic value. Therefore, most of their current price is based on expectations of what other people will value it at. This means it is perceived as "high risk". Thus, it tends to move in similar ways to other high risk assets, e.g. high tech stocks or Chinese real estate bonds.

Also, gold has not dropped nearly as much as BTC, in part because it didn't rise nearly as much in 2020 and 2021.

Technically Bitcoin isn't anti inflationary in the sense of it being correlated with US inflation. It's only anti inflationary in the sense of it being subject to a limited supply. So anybody believing Bitcoin is correlated with their countries inflation is sorely mistaken.

Gold on the other hand is a commodity with a real market use as a material, so you would expect it's price to go up when the value of currency goes down. But it's also subject to many market forces so it's price is not as simple as an inflation number. Any commodity material or product could be seen this way

Any given cryptocurrency could be deflationary. Cryptocurrency as a whole is massively inflationary: there are new cryptos every day.

BTC is just another crypto. It happened to be the earliest and most prominent, but that doesn't make it "best" (which is why so many others appeared). So when crypto crashes, BTC crashes.

The current crash has nothing to do with inflation, at least not directly. Crypto is crashing as part of the deflation of the "everything bubble", which may have been spurred by the supply chain crisis (including the war in Ukraine) that causes inflation.

Gold was a smaller part of that "everything bubble". It might be benefitting from the flight of dollars into commodities, but overall it's decreasing because of a decrease in the money supply as leveraged positions close and interest rates go up. (Which will eventually cause inflation to level off, though prices won't come down until the world works around the disaster in Ukraine.)

Bitcoin has no real world use other than speculation (my opinion). I honestly think Bitcoin should be worth 0 but that's me.

Gold does have some real world usage (industrial, jewellery etc). It is not as down as Bitcoin and will always have demand.

If it was worth 0 you couldn't use it to exchange goods and services. The real world use is for exchanging money for services. Have you ever done this? This woull be considered a real world use.

Gold is down much less than Bitcoin year-to-date. Currently Yahoo Finance says the YTD return of GLD is -5.11%, so it has outperformed stocks and bonds. High inflation has increased market expectations of rate increases by the Federal Reserve. Higher interest on money market funds makes gold, which does not pay interest, less attractive. OTOH, inflation ought to boost the price of a real asset such as gold.

> Gold and Bitcoin were supposed to be anti-inflationary.

Because they aren't. They are subject to the same cycle as commodities and other assets.

To make it simple: who cares about something he can't eat?

Any product for which a speculative market exists can be expected to go through periods of price irrationality. Current inflation is logistical rather than monetary, and it seems people expect things to go back to "normal" shortly. Plus, lots of war planning makes investments in "defense" industries wiser than gold.

People pretending to understand things they don't have a clue about.

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