The market resembles a mountain—profound, enigmatic, and perpetually unpredictable. Always approach it with reverence.
Introduction
Inflation has emerged as the most pressing economic issue this year. While its impact may feel distant in East Asia, residents of the U.S. and Europe face tangible consequences through relentlessly rising bills.
This article explores decades of inflationary trends, examining why Bitcoin—often touted as "digital gold"—has underperformed recently. We focus on U.S. data given its global economic influence and Bitcoin’s origins during the 2008 financial crisis.
Embedded in Bitcoin’s genesis block is a Times headline: "Chancellor on brink of second bailout for banks." This symbolized rebellion against central banks and fiat currency debasement. Early adopters championed Bitcoin’s fixed 21-million supply as antithetical to inflationary monetary policies. Yet post-pandemic inflation surges have contradicted this narrative, revealing complexities in Bitcoin’s role.
Key Sections
1. Understanding Inflation
Inflation stems from two drivers:
- Supply shortages (e.g., 1970s oil crises)
- Excess demand (e.g., post-pandemic spending)
Nobel economist Milton Friedman asserted: "Inflation is always a monetary phenomenon." Yet after 2008, unprecedented money printing (quantitative easing) failed to trigger expected inflation. Why?
2. The Silent Inflation Paradox (2008–2020)
Globalization and technological advances suppressed prices:
- China’s manufacturing dominance flooded markets with affordable goods.
- Automation (e.g., Tesla’s factories) slashed production costs.
- Productivity gains offset currency expansion, keeping CPI near the Fed’s 2% target.
Example: A 1973 mobile phone cost ~$13,000 (today’s dollars) vs. a modern iPhone at $1,000—demonstrating deflationary tech trends.
3. Pandemic Disruptions and Supply Shock
COVID-19 exposed systemic frailties:
- Lockdowns froze spending, causing temporary deflation (2020).
- Reopening unleashed pent-up demand amid broken supply chains (2022).
- Geopolitics: Russia-Ukraine war spiked energy/food costs, while China’s COVID policies stalled global logistics.
Labor shortages and wage spirals further fueled inflation, creating a feedback loop.
4. Where Did the Printed Money Go?
Excess liquidity flowed into scarce assets:
- Real estate: U.S. median home prices doubled since 2005.
- Equities: S&P 500 P/E ratios soared post-1990s.
These assets absorbed surplus dollars, shielding consumer goods from price hikes—until supply shocks disrupted the balance.
5. Bitcoin’s Identity Crisis: From Rebel to Risk Asset
Bitcoin’s evolution:
- Early vision: Decentralized money challenging fiat systems.
- Reality: Volatility hindered its utility as a transaction medium.
- Pivot: Institutional adoption (e.g., Ray Dalio) rebranded Bitcoin as a risk asset.
Irony: Bitcoin rose on easy money (2021’s 6% rates) but crashed when inflation prompted Fed tightening (2022). Its price now hinges on liquidity cycles—not inflation resistance.
FAQs
Q: Can Bitcoin regain its $60K peak?
A: Likely only when the Fed resumes loose policies, restoring market liquidity.
Q: Is Bitcoin truly scarce?
A: Yes (21M cap), but demand determines value. Unlike housing, it lacks essential utility, making prices volatile.
Q: Why did inflation spike post-COVID, not during?
A: Lockdowns suppressed spending; reopening overwhelmed fractured supply chains.
Conclusion
Bitcoin’s journey from anti-inflationary icon to liquidity-dependent asset underscores market unpredictability. Its future hinges on macroeconomic tides—not fixed narratives.
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"The market is a mountain—respect its mysteries."
Disclaimer: This content is informational and not financial advice. Comply with local regulations.
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