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Bitcoin is the Lowest Risk Inflation Hedge You Can Own
More wealth-building “work” with less capital at risk
Teeka Tiwari
March 17, 2024
Bitcoin is the Lowest Risk Inflation Hedge You Can Own
There are many reasons to own bitcoin. Protecting the purchasing power of your money is just one of them.
But is bitcoin the only inflation hedge you can own?
No, it’s not. But I believe it’s the most efficient.
What I mean by that is the amount of bitcoin you have to own relative to other inflation-protecting assets is far lower. Bitcoin protects more of your assets with less money invested in it than gold, real estate or stocks.
Let’s say you had a $1 million net worth in 2019. And you wanted to protect the purchasing power of your money from inflation.
According to the Consumer Price Index (CPI), prices are up 21% since 2019.
That means your inflation-protecting investments would have had to make an additional $210,000 to maintain the purchasing power of your $1 million.
So let’s compare the numbers:
Since January 2019, the S&P 500 is up 107%. That means you would’ve had to invest $196,000 (19.6%.) of your net worth in the S&P 500 to protect your wealth from inflation.
Since January 2019, the Nasdaq is up 145%. That means you would’ve had to invest $144,000 (14.4%) of your net worth in the Nasdaq to protect your wealth from inflation.
Since January 2019, gold is up 68%. That means you would’ve had to invest $309,000 (30.9%) of your net worth in gold to secure your wealth from inflation.
Since January 2019, the Vanguard Real Estate Index Fund (VNQ) is up 16%. That means even if you had put all your money in the fund, you’d still be trailing inflation. You would be stuck with a $50,000 loss in purchasing power (not including dividends).
Since January 2019, bitcoin is up 1,727%. That means you would’ve had to invest $12,150 (1.2%) of your net worth in Bitcoin to secure your wealth from inflation.
This is what I mean when I refer to bitcoin as a more efficient way to protect your money’s purchasing power. It does more wealth-building “work” with less capital at risk.
In 2019, you could’ve literally put 98.8% of your money in risk-free 90-day Treasury bills, 1.2% in bitcoin and been spared the massive capital losses everyone else had to live through during the pandemic-induced bear market.
Think of the risk involved tying up 19.6% of your capital in the S&P 500 when it dropped as much as 35% during the COVID-19 pandemic.
What about tying up 14.4% of your entire net worth in the tech-heavy Nasdaq and watching as 33% of your capital evaporated in early 2020.… and then again when 38% of your money went up in smoke during the 2022 tech bear market.
And what about the whopping 31% of your net worth you’d have to bet on gold working out in order for your money to be safe from inflation.
Imagine your frustration had you put all your money into the VNQ real estate fund only to watch it lag inflation.
Friends, the numbers are right in front of you.
Yes, it’s true bitcoin is not the only way to fight inflation. It’s just the most efficient and lowest-risk way I know of.
I didn’t say it was the least “volatile.” But who cares about volatility when you only have to expose 1.2% of your capital to outrun the worst wave inflation we’ve seen since the 1970’s?
In future essays, I’ll talk more about the next wave of inflation I expect to hit the markets. And I’ll outline exactly how much of an allocation to bitcoin you will want to have to outrun this coming attack against the purchasing power of your money.
Let The Game Come To You!
Big T
