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Is Bitcoin becoming worth more or the dollar worth less?

Updated: Aug 31, 2024
Published: Aug 4, 2020
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When we, or others in the crypto-community, mention Bitcoin’s price, we are referring to its price against fiat currencies; more often than not the US Dollar. The question becomes: as Bitcoin’s price increases, is it actually becoming worth more of just the dollar becoming worth less?

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Global Monetary Inflation

It is no secret that the Federal Reserve has been printing money under the name of “quantitative easing” in order to rescue the economy. These excessive dollars put in circulation are not a small number and were worth trillions in the past few months.

By the laws of supply and demand, in order for the dollar’s value to remain stable there needs to be an equal increase in demand to meet the excess supply. At first, when the pandemic hit and the markets crashed investors flocked to cash and that increased the demand on the dollar for a while, therefore giving it stability even in the face of the printing that was incoming.

However, things have started calming down now and investors do not have the same appetite for cash positions. Many are flocking to safe havens because inflation is knocking on the door. The most popular safe haven is of course Gold, the shiny yellow material that has hit new all-time highs against the US dollar. But has its value really hit an all-time high?

Consumer Price Index

Fiat currencies are subject to inflation. What you could purchase with $100 50 years ago has dramatically decreased and that is the results of inflation. Value, or purchasing power is what most people are really after; preservation of wealth and preserving their purchasing power.

Enters the consumer price index. By definition, the CPI is: “The Consumer Price Index (CPI) is a measure that examines the weighted average of prices of a basket of consumer goods and services. Changes in the CPI are used to assess price changes associated with the cost of living.

Dollar Index

Now the dollar index (Ticker: DXY) has dropped as can be seen below.

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Simultaneously, commodities and Bitcoin are rallying. This is where the question we posed at the start of the article gets answered.

Gold vs CPI

While Gold has hit an all-time high against the US Dollar it has not against the CPI. This proves that Gold has reached peak value in 2011 and is yet to cross it. However this does not mean that Gold is not becoming worth more, on the contrary it has clearly rallied against even the CPI and hence offers a higher purchasing power.

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Bitcoin vs CPI

The digital Gold or Gold 2.0 has also seen a strong rally recently. Looking at BTC/CPI gives very little insight unlike Gold because its moves are so substantial against the US Dollar that the chart looks quasi-similar.

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The Final Verdict

The answer to the question: “as Bitcoin’s price increases, is it actually becoming worth more of just the dollar becoming worth less?” is both. Both Bitcoin is moving up in value and purchasing power and the dollar is weakening and that creates a double positive effect against for BTC/USD especially as inflation kicks up more.

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