I have previously posted about various topics to this platform, including about current events, but I feel that my best-received posts are ones that are original and feature my own perspective. Although this analysis of mine was nested within one of my previous posts, I would like to revisit it today for Throwback Thursday #TBT

Annual performance of Bitcoin since 2013

Goldman Sachs argued that cryptocurrencies do not show evidence of hedging against inflation. Admittedly I don't follow all cryptocurrencies, so I focused my analysis on the performance of Bitcoin.

I used coinmarketcap.com to retrieve my data.  Unfortunately, the earliest data available for Bitcoin was from April 28, 2013*. I then calculated annual gains from January 1 to December 31 for each calendar year. You can also see the performance of a $100 investment on April 28, 2013, and also on each successive January 1 from 2014 to 2019.

Bitcoin yearly percentage change from 2013-2020*

Source of Bitcoin pricing: Coinmarketcap

Annual rate of inflation in the US since 2013

The annual inflation rate in the US since 2013 ranged between 0.73% to 2.28%.

How well does Bitcoin fare?

Let's look at the table above more carefully. Since 2013, the only year in which Bitcoin would not have performed well as a hedge against inflation was 2018.

But what about the -59% yearly change in value experienced resulting from 2014 you ask? If the Bitcoin buyer was a HODL'er, however, then that individual would have recovered their losses by 2017. In fact, their $100 purchase on January 1, 2014 would be worth $933.39 if they continued to HODL until January 1, 2020.

And what about the 72% drop in 2018? Well, nothing is perfect. 😉

Final verdict

Does Bitcoin perform well as a hedge against inflation? My calculations above use the same methodology that many investment banks use when promoting mutual funds, and they indicate that Bitcoin does this job very well, despite it's relatively short lifespan to date. I'm not sure how Goldman determined there is no evidence of hedging against inflation. 

To those who prefer to buy gold as a hedge...

I love Greyscale Investments' great tag line...#DropGold

And just in case you missed it, maybe these lenders should have asked for Bitcoin instead of gold.

Thanks for reading!

Good luck, and stay safe!

Cropped cover art by Gerd Altmann from Pixabay 

Edited August 6, 2020 to correct weblink to reference gold fraud