- Germany’s inflation is at 30-year highs.
- Michael Saylor has urged investors to ignore bonds and buy Bitcoin.
- Bitcoin continues to correlate with equity markets.
MicroStrategy’s Michael Saylor has urged German investors to turn to Bitcoin as inflation touches 30-year highs. He said this in response to a tweet from Holger Zschaepitz, who noted that though inflation is at record levels, the ECB interest rate remains at 0%.
Rising Inflation
Inflation is now a pressing concern for many developed economies. From the US to Spain and now Germany, all have reached levels of inflation not seen in several decades. As reported by Zschaepitz, inflation in Germany now stands at 7.3%, a level not seen since 1981.
The present situation is partly a result of decisions taken by financial agencies and governments to respond to the economic damage brought by the pandemic to keep businesses and families afloat. However, from low-interest rates to stimulus packages, the outcome was more printing of fiat and inflation. With the effects of the pandemic still being felt and irreversible in some industries, governments are still reluctant to effect policy changes, as demonstrated by the ECB’s interest rate cited by Zschaepitz.
Saylor recommends that investors abandon bonds and buy Bitcoin to hedge against inflation. He believes that the devaluation of fiat over time due to inflation means that bonds do not act effectively as a store of value. His tweet reads, “The rational response would be to replace bonds with bitcoin. Sovereign debt is no longer a store of value.”
Bonds are investment vehicles offered by governments and companies to raise funds to carry out projects. They offer investors annual interests and return the initial capital after an agreed period. Bonds are usually considered a safer bet when compared to stocks depending on the issuer. Considering current inflation rates, Saylor reasons that when these promised gains are inflation-adjusted, it does not prove to be a viable investment.
Michael Saylor remains a firm believer in the ability of Bitcoin to serve as a store of value. He believes Bitcoin to be the only scarce asset and, as such, expects the value to grow over time. Recently a subsidiary of MicroStrategy, known as MacroStrategy, obtained a loan of over $200 million backed by Bitcoin to purchase more Bitcoin.
Bitcoin Continues To Correlate With TradFi
While the fixed and limited supply of Bitcoin makes a case for the asset as a potential store of value, its continued correlation with equity markets and high volatility makes it difficult for most economists to agree on the topic.
Some economists have theorized that the price movements of the foremost digital asset by market cap correspond to gold in the 70s. These experts reason that current price movements do not discount its potential as an edge against inflation.
Bitcoin earlier yesterday dropped by over 5%, dipping below the $45k price point after a week of bullish momentum. The price reaction occurred not too long after the US Department of Commerce released the personal consumption expenditures price index (PCE).
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