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Realized Losses Spike as Bitcoin Inflation Hedge Properties Are Questioned

2 mins
Updated by Geraint Price
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In Brief

  • Realized Bitcoin losses have spiked to their third-highest ever levels.
  • U.S. inflation hits 9.1%, beating predictions.
  • BTC dumped 4.3% on the news as observers questioned why.
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Both realized and unrealized losses have spiked for Bitcoin holders, while detractors continue to question its properties as a hedge against inflation.

According to on-chain analytics provider Glassnode, Bitcoin realized losses have spiked to their third-highest levels in history. A realized loss is the loss that is recognized when assets are sold for a price lower than the original purchase price.

This is slightly different from an unrealized loss, which is when the holder has yet to sell, but the price is below the purchase price.

According to the chart, realized losses spiked higher during the volatile early Bitcoin trading days in 2011 and 2013. There was another spike during the March 2020 pandemic-induced market crash.

In June, Glassnode reported three consecutive days with the largest USD-denominated realized losses in Bitcoin history, with more than $7.3 billion of outflows. The updated chart was posted on crypto Twitter on July 14.

Is BTC an inflation hedge?

The suppressed price action has caused many market observers to question Bitcoin’s frequently touted properties as an inflation hedge. It certainly isn’t behaving like one at the moment, having lost 70% in a year that has seen inflation surge to four-decade highs.

On July 13, the U.S. government announced that the consumer price index (CPI), which is a gauge of inflation, soared to 9.1%, beating expectations of 8.8% and marking the biggest yearly increase since 1981.

Economist Alex Krüger labeled the CPI announcement as the “Crypto Pain Index” as Bitcoin dumped 4.36% in the hour that followed the announcement. Others began to question why.

Higher inflation in any country is bad news for all high-risk assets as it erodes market sentiment and purchasing power. Therefore, it would be logical to conclude that BTC is not behaving as an inflation hedge at the moment. If anything, stablecoins have been seen as a better lifeboat, especially in countries with the highest inflation such as Argentina, Turkey, Brazil, and Venezuela.

More pain before gains

ShapeShift founder Erik Voorhees was one of the few backing Bitcoin at a time when it’s on the ropes, commenting:

“People dunking on #Bitcoin because it hasn’t outperformed dollars during this high inflation are forgetting one important thing. Bitcoin will go back up. The dollar only goes down.”

At the time of press, Bitcoin prices had recovered their post-inflation news puke and had returned to $20,000, however, the short-term macroeconomic outlook is still very grim.

With Federal Reserve rate hikes expected later this month, the likelihood of Bitcoin prices falling even further is a strong one.

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Martin Young
Martin Young is a seasoned cryptocurrency journalist and editor with over 7 years of experience covering the latest news and trends in the digital asset space. He is passionate about making complex blockchain, fintech, and macroeconomics concepts understandable for mainstream audiences.   Martin has been featured in top finance, technology, and crypto publications including BeInCrypto, CoinTelegraph, NewsBTC, FX Empire, and Asia Times. His articles provide an in-depth analysis of...
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