As inflation erodes the purchasing power of fiat currencies, investors increasingly seek assets capable of preserving real value. Traditional inflation hedges such as gold, real estate, and equities have long occupied an important place in this debate, yet none of these assets provides universally consistent protection across all macroeconomic environments (Bodie, 1976; Gyourko & Keim, 2020; Wang et al., 2021). In the past decade, Bitcoin has emerged as a highly contested alternative. Its decentralized structure and fixed supply have led many proponents to frame it as "digital gold," while its extreme volatility and speculative price behavior have led critics to question whether it can function as a dependable store of value at all (Dyhrberg, 2016; Narayan et al., 2022).
This thesis evaluates Bitcoin's effectiveness as an inflation hedge through a comparative analysis of three distinct monetary environments: the United States, Venezuela, and Turkey. These cases represent low, extreme, and elevated inflation regimes, respectively, and provide a useful framework for testing whether Bitcoin's hedging properties are universal or conditional on the surrounding economic setting. Using monthly data from 2013 to 2024, the study combines descriptive statistics, correlation analysis, inflation beta estimation, and regression analysis to compare Bitcoin's behavior with that of more traditional inflation-related assets, including gold, equities, and real estate.
The results indicate that Bitcoin does not function as a universal inflation hedge. In the United States, Bitcoin exhibits a weak and inconsistent relationship with inflation, suggesting that its price movements are driven more by liquidity conditions, market sentiment, and broader financial dynamics than by inflationary pressure itself. In Turkey, Bitcoin displays stronger but less stable hedging characteristics, indicating that it may provide partial protection in an environment of elevated inflation and macroeconomic instability. In Venezuela, the relationship between Bitcoin and inflation is strongest, consistent with the argument that Bitcoin may become more relevant as an alternative store of value when domestic currency credibility breaks down.
This thesis contributes to the literature by showing that Bitcoin's inflation-related role depends heavily on the monetary setting in which it is being evaluated. In doing so, it offers a more nuanced perspective on Bitcoin's role in inflation protection and highlights the importance of economic context in assessing the financial relevance of digital assets.
This thesis evaluates Bitcoin's effectiveness as an inflation hedge through a comparative analysis of three distinct monetary environments: the United States, Venezuela, and Turkey. These cases represent low, extreme, and elevated inflation regimes, respectively, and provide a useful framework for testing whether Bitcoin's hedging properties are universal or conditional on the surrounding economic setting. Using monthly data from 2013 to 2024, the study combines descriptive statistics, correlation analysis, inflation beta estimation, and regression analysis to compare Bitcoin's behavior with that of more traditional inflation-related assets, including gold, equities, and real estate.
The results indicate that Bitcoin does not function as a universal inflation hedge. In the United States, Bitcoin exhibits a weak and inconsistent relationship with inflation, suggesting that its price movements are driven more by liquidity conditions, market sentiment, and broader financial dynamics than by inflationary pressure itself. In Turkey, Bitcoin displays stronger but less stable hedging characteristics, indicating that it may provide partial protection in an environment of elevated inflation and macroeconomic instability. In Venezuela, the relationship between Bitcoin and inflation is strongest, consistent with the argument that Bitcoin may become more relevant as an alternative store of value when domestic currency credibility breaks down.
This thesis contributes to the literature by showing that Bitcoin's inflation-related role depends heavily on the monetary setting in which it is being evaluated. In doing so, it offers a more nuanced perspective on Bitcoin's role in inflation protection and highlights the importance of economic context in assessing the financial relevance of digital assets.