BOLD and inflation
This post is meant to convince you that BOLD is a liquid inflation hedge.
Inflation: food, fuel and housing
Why would you want a hedge against inflation?
The average person cares deeply about the prices of fuel and food. Even though every central bank tries to hoodwink the populace into believing that fuel and food prices are not important yardsticks of inflation, we all take notice when these prices rise. Failure to tame this type of inflation has historically led to revolutions.
Arthur Hayes wrote this in a blog post titled “Shut it down!”. Here is another quote and a graph from the same source.
The median yearly income for Americans is approximately $50,000. You know you’ve printed too much money when the median house appreciated more than the median income.
BOLD and inflation
Bytetree wrote a blog post about the Vinter Bytetree BOLD index (“BOLD1”) titled “The best inflation hedge of all”. The three main characteristics we would like to highlight are (i) BOLD is an inflation hedge (ii) the volatility is low (iii) the liquidity is deep. Below is a cut- and paste summary of that blog post, starting with a plot of inflation and the BOLD index.
i. Inflation Hedge
The 10-year breakeven rate measures the gap between 10-year Treasury Bond and Treasury Inflation Protected Securities (TIPS). The 10-year breakeven rate serves as an indication of the market's inflation expectations over the 10-year horizon. This inflation expectation is plotted in red. BOLD1 is plotted in blue. Since mid-2019, the red and blue lines have been hugging each other. This provides one argument for why the Vinter Bytetree BOLD1 Index is an inflation hedge. That’s the first and most crucial point, the other two being low volatility and deep liquidity.
ii. Low Volatility
“I cannot have bitcoin in my portfolio, even if I want an inflation hedge, because it’s too volatile”, the novice investor might complain. The next graph tackles this complaint. This plot shows the 90 Day Volatility of a few selected assets. The three red periods — late 2018, early 2020, 2022 — mark periods of equity corrections which, of course, correspond to periods when the volatility is rising.
BOLD1 (blue line) has remained less volatile than equities (purple line). Think about this for a second. One of the main arguments people use against Bitcoin is that it is too volatile for them to invest. When you blend enough gold into the portfolio (roughly 80% gold and 20% bitcoin) the volatility is lower than equities. BOLD is remarkable as it blends the old world’s store of value with the new.
A liquid inflation hedge must be somewhat detached from the financial system and is unlikely to pass ESG screening with flying colors. Bitcoin and Gold can’t default because they are no one’s liability — that is the beauty of liquid alternative assets.
iii. Deep Liquidity
Thirdly, what about liquidity? Gold trades $145 billion/day (World Gold Council) whereas Bitcoin trades $40 billion/day (on-chain, CME Futures and crypto exchanges). Bitcoin and Gold are the two most liquid alternative assets in the world. They are not in competition, play different roles, have global cross-border and cultural appeal, and come together as an all-weather inflation hedge.
This post originally appeared in the Vinter monthly industry insight newsletter.
The Vinter Bytetree BOLD1 Index is a financial index consisting of bitcoin and gold. The index is administered and calculated by Vinter. For more information on BOLD, visit https://vinter.co/bytetree
