What does inflation hedge mean?

Inflation hedge refers to investments that protect investors from the declining purchasing power of money due to inflation. The investments are expected to maintain or increase in value during inflationary cycles.

Interestingly enough, many institutional investors now consider Bitcoin as the new inflation hedge, as JP Morgan noted. 

Bitcoin has been on a run lately, surpassing $50,000 for the first time in a month, and up 87% year to date. Gold is down 7.3% in the same time span.

Bitcoin has seen large fluctuations this year, but that doesn’t seem to be bothering investors. According to JPMorgan’s Thursday note, “Institutional investors appear to be returning to Bitcoin, perhaps seeing it as a better inflation hedge than gold.”

The note comes as no surprise for those who have been following investments in Bitcoin in 2021. In April, the crypto exchange Coinbase noted in its first quarter report that of the $335 billion in trades the company hosted that quarter, $215 billion came from more than 8,000 institutional investors.

Part of the motivation for these deep-pocketed investors to invest in Bitcoin and other similar cryptocurrencies is their built-in protection against inflation.