Inflation and Asset Behavior: An Empirical Analysis of Bitcoin’s Hedging Potential Compared to Gold and Oil

Abstract

This study examines whether bitcoin exhibits inflation hedging characteristics and can be utilized by investors to preserve their capital from erosion caused by inflation. Furthermore, comparison with traditional inflation hedging assets such as gold and oil is made to determine whether bitcoin outperforms these assets. To accomplish this, two different linear regression models were constructed, where the first model focuses on the period between 2014-2024 and the second model focuses on the period 2019-2022. Moreover, this thesis is limited to U.S inflationary data. By dividing the thesis in two linear regression models, bitcoin's relationship with inflation can be analyzed both in the long-term and during times of heightened volatility in inflation, particularly before, during and after the COVID-19 pandemic. The results of the first model found no statistically significant relationship between bitcoin and inflation. However, the second model found a strong statistically negative relationship. Therefore, bitcoin may not serve as an inflation hedging asset. In comparison, gold and oil have been found from previous empirical studies to at least exhibit partial inflation hedging characteristics, implying a more suitable choice for investors worried about inflation.