Cryptocurrencies as Inflation Hedges: The Case for Bitcoin and Stablecoins

For Paul Tudor Jones, billionaire hedge fund manager, bitcoin, gold and stocks are “the best portfolio to fight inflation”. Gold, of course, as a store of value and a safe-haven asset, has long been known as a savvy investment, increasing in value even as inflation rises and erodes the local currency. Stocks, on the other hand,  offer the potential for capital appreciation and dividends that can outpace inflation over time. What to make of bitcoin and other cryptocurrencies like stablecoins as hedges against inevitable inflation?

In Summary

• Bitcoin is increasingly seen as "digital gold" due to its fixed supply, with potential as a long-term hedge against inflation—though its high volatility limits short-term reliability.
• Stablecoins, pegged to fiat currencies like the U.S. dollar, offer price stability compared to weaker local currency and are widely used in inflation-hit economies.
• In Argentina and Nigeria, where local currencies have rapidly devalued, citizens turn to crypto—especially stablecoins—to preserve purchasing power and bypass currency controls.

Hedging Against Inflation

What Is Inflation?

Inflation happens when the amount of money in the economy grows faster than the goods and services available. If governments or central banks add too much money—“printing money”—without boosting production, each unit of money loses value. This causes prices to rise and reduces what people can afford with their wages and savings. Inflation affects everyone in a country, but the underprivileged bear a disproportionate burden, paying a higher price than the rest of the population.

Yet, not all inflation is bad. Though consumers prefer an inflation rate of zero percent, the Central Bank of Canada and the U.S. Federal Reserve, both responsible for the hard currencies that are the USD and the CAD—politically and economically stable currencies—aim to keep inflation at an ideal rate of 2%, which allows for the economy to be stimulated while maintaining somewhat of a price stability.

In 2022, inflation reached 8% in Canada and the United States, with repercussions felt across the populations of both countries—the highest annual rates in decades for these hard-currency economies. In comparison, Argentina’s 47.3% annual inflation rate is its lowest in four years. What this figure represents is that, on average, goods and services have increased in price from April 2024 and April 2025 by 47.3%. 

How to Hedge Against Inflation?

Theoretically, a hedge preserves monetary value where inflation erodes it, allowing those who own it to purchase goods and services despite exorbitant costs. Gold, for example, has inherent value unlike fiat currencies which are subject to monetary policy adjustments—significant drivers for inflation.

A good inflation hedge as an investment also outpaces inflation in the interests it generates. Funds placed in traditional savings accounts with annual interest rates between 1% and 2.50% will depreciate in value when compared to the broader context of an 8% inflation rate, even though they have grown in absolute terms. Meanwhile, gold increases significantly more in value during times of financial crises.

Bitcoin has been lauded as digital gold in recent years. We now examine how this claim holds up, and how stablecoins may compare to it situationally.

The Case for Bitcoin

Scarcity

Bitcoin was designed as an inflation-proof medium of exchange with a capped supply, mimicking the scarcity of the natural resource. Though bitcoins are still actively being mined, there exists an encoded and hard limit of 21 million bitcoins, after which no new bitcoins will be issued. The limited supply of bitcoins also distinguishes them from traditional government-issued currencies, which can be adjusted at will by their central bank issuers.

Decentralization and Independence

Bitcoin’s independence from direct government control makes it appealing to those looking to shield their savings from inflation—particularly in an era of rising national and global debt. Ray Dalio, founder of Bridgewater Associates, warns that in the long term, growing debt burdens will erode the value of fiat currencies. He points to assets like gold and Bitcoin—as forms of “hard money” that offer a strong alternative to bonds and government-issued debt.

Increase in Institutional Adoption

Bitcoin, like other cryptocurrencies, is subject to extreme volatility. While this may take away from Bitcoin’s reputation as “digital gold”—gold being one of the most stable assets—, institutional adoption is starting to dampen price volatility. In recent years, institutional investors have increasingly recognized the potential of bitcoins as stores of value, which refer to assets or currencies which can be saved, retrieved and exchanged later without significant loss of purchasing power—important characteristics for inflation hedges to have.

Performance in Times of Uncertainty

A study has found that bitcoin prices appreciate when there are inflation shocks, a quality bitcoins share with gold. The comparison between bitcoins and gold is imperfect, though, with bitcoin prices declining in times of financial uncertainty such as market sell-offs, whereas the price of gold, as a safe-haven asset, tends to increase in times of crises.

Still, policy uncertainty does not seem to negatively impact the price of bitcoin, suggesting that it operates independently from government manipulation, while not necessarily being free from government influence. Crackdowns can affect public sentiment towards cryptocurrency and therefore affect prices.

Short-Term Performance Versus Long-Term Performance

Conflicting reports exist in relation to whether bitcoins perform better as inflation hedges over the short term or over the long term.

On one hand, in the short term, the price of bitcoin can soar and drop at an instant. This limits its reliability as an inflation hedge over the short term—functioning more like a speculative asset rather than a stable store of value in this context. Yet, a study finds that in countries facing hyperinflation, a hedge is found on the short term, while bitcoin fails to provide protection on the long term.

Alternatively, according to The Cointelegraph, over the long term, as fiat currencies lose purchasing power due to persistent inflation and central bank interventions, bitcoins’ scarcity enables them to retain value over time. While still relatively young, bitcoins have shown strong long-term appreciation, suggesting their potential to serve as durable stores of value for investors with longer horizons and  tolerance for volatility.

In Sum

Bitcoin offers distinct advantages over gold, particularly in terms of its portability and accessibility as a digital asset. However, its high volatility, correlation with risk assets during market sell-offs, and the current state of adoption limit its effectiveness as a reliable hedge against inflation, especially in developed markets. Nevertheless, as bitcoins continue to gain mainstream acceptance and move further away from the fringes, their potential to serve as inflation-proof assets is likely to strengthen over time.

The Case for Stablecoins

Stability

While stablecoins do not offer the upsides of bitcoin in terms of decentralization or long-term appreciation potential, the stability they were designed for makes them especially attractive in environments where the local currency is rapidly losing value.

The value of stablecoins are tied to that of another asset, like the dollar—as such, they are much less relevant as inflation hedges in countries with hard currencies, such as Canada and the United States, where they can instead serve as payment instruments.

Access to a Hard Currency

Individuals facing hyperinflation within their home country can, through the conversion of their local currency into a stablecoin pegged 1:1 to a fiat currency like the USD,  access the upsides of that foreign currency and prevent the erosion of their funds due to local currency devaluation.

Converting local currencies into foreign currencies has long been a trusted method for protecting wealth against local inflation. Stablecoins enhance this strategy by combining the stability of hard fiat currencies—like the U.S. dollar—with the unique advantages of digital assets. They offer greater portability, broader accessibility and lower transaction costs by eliminating traditional foreign exchange (ForEx) fees, making inflation protection more efficient and inclusive.

Furthermore, in some countries, access to U.S. dollars may be restricted by foreign exchange currency controls—like in Nigeria or in Argentina, although restrictions have recently been lifted in the latter—stablecoins provide an opportunity to benefit from USD stability without restrictions.

In Sum

Stablecoins lack the independence that bitcoins offer and remain reliant on both their underlying fiat currency and centralized issuers’ reserves, which, if they fail to cover liabilities, can threaten price stability. They are also more directly subject to regulation than bitcoins. Nonetheless, they present a practical solution for individuals in countries facing extreme inflation. In such environments—where local currencies rapidly lose value—stablecoins can serve as a means of preserving wealth and maintaining purchasing power.

We now turn to a closer examination of how both bitcoins and stablecoins like USDC have played roles in mitigating the effects of inflation crises around the world.

Case Studies: Worldwide

Argentina

Confronted with annual inflation rate reaching a staggering 237% in 2024—the highest in the world—and burdened by strict foreign exchange controls that capped monthly U.S. dollar purchases and imposed steep taxes and surcharges on currency conversions, many Argentinians were left with few viable options.

Formal currency exchange was costly and heavily restricted, while informal alternatives, like the black market “blue dollar,” carried legal and financial risks. In this context, cryptocurrency emerged as an attractive alternative, offering a way to preserve value, bypass currency controls—lifted since April 2025—and escape the rapid devaluation of the Argentinian peso (ARS).

This is how Argentinians have found their place among the top crypto users worldwide, with a cryptocurrency adoption rate of 18.9% compared to a global average of 6.8% of the population.

Interestingly, data shows that as the Argentinian peso’s value drops, stablecoin trading volumes surge: for instance, when the ARS fell below an exchange rate of $0.004 (USD) in July 2023, the following month, the Latin American Bitso crypto exchange saw stablecoin trade volumes jump above $1 million on their platform. When the ARS later fell below $0.002 in late 2023, stablecoin volume the next month exceeded $10 million.

While it is clear the ARS is losing ground, some Argentinians question the health of the U.S. dollar—buying bitcoin instead of dollars in order to protect themselves from inflation as well as a potential decline in dollar preeminence as debt grows and devalues fiat currencies. Despite this, cryptocurrency purchases in Argentina remain heavily skewed toward stablecoins, which account for 61.8% of total transaction volume across all asset types.

At the same time, demand for bitcoins surged on Argentina-based cryptocurrency exchanges such as Lemon Cash and Belo. Belo, in particular, reported a near tenfold increase in bitcoin transactions year-over-year, underscoring how deeply the currency crisis had pushed Argentinians toward decentralized alternatives for preserving value and conducting transactions.

Indeed, nearly three quarters of Argentinians view cryptocurrency and blockchain as solutions to the inflation crises, as well as high transaction fees encountered through traditional means of payment and remittance.

Nigeria

Nigeria too has faced in the last years the devaluation of its local naira (NGN) as well as high rates of inflation. While recent headlines celebrate a declining inflation rate of 22.97% in May 2025 down from 34.80% in December 2024, local news denounce the reality behind the numbers: essentials are still completely unaffordable for most locals.

While monetary reforms in 2023 significantly devalued the naira, stablecoin transaction volume significantly increased in response. Nigeria is a major market for crypto, with reports indicating that between 10% and 30% of its population owned cryptocurrency—Nigeria is also the leader in the region of sub-Saharan Africa. Both retail crypto owners and businesses use stablecoins as a proxy to the U.S. dollar in order to transact in a currency that is relatively stable compared to the NGN amidst a foreign exchange crisis.

Among the cryptocurrencies circulating in Nigeria—facilitating both fast local and cross-border transfers—stablecoins are the most widely used, accounting for 43% of total transaction volume. By comparison, bitcoins represent just 18.1% of the country’s overall crypto asset activity, highlighting a strong preference for price-stable digital currencies in an economy facing currency volatility and inflation.

Nigerians use stablecoins and bitcoin as a hedge for savings, again privileging the former for the stability it offers. Keeping one’s savings in a failing naira and at high monthly inflation rates significantly depreciates one’s wealth and lowers one’s purchasing power, thus forcing Nigerians to find alternatives outside the traditional banking system.

Stablecoins, in particular, provide a way to preserve purchasing power by offering access to stronger foreign currencies like the U.S. dollar—without the need to access formal dollar accounts, which are often restricted by currency controls and regulatory barriers.

In conclusion, more than speculative investments, digital assets have become lifelines for Argentinians and Nigerians grappling with local currency devaluation and hyperinflation. Bitcoins and stablecoins in these contexts act as hedges, with each having their respective advantages and disadvantages.

Overall, bitcoins are widely regarded for their strong long-term performance and their potential to outpace inflation, reinforcing their appeal as a digital store of value. However, high volatility continues to cast doubt on the reliability of bitcoin as “digital gold,” particularly during periods of market stress.

Stablecoins, by contrast, offer price stability by being pegged to hard currencies like the U.S. dollar, making them a practical tool for preserving savings in countries experiencing rapid currency devaluation. Yet, their utility as an inflation hedge is limited in developed economies like the United States or Canada, where the local currency remains strong and inflation protection requires assets that can appreciate rather than remain stable.

As virtual assets increasingly gain mainstream acceptance and as prices of bitcoin and other cryptocurrencies stabilize, crypto has the potential to play a greater role as an inflation hedge across developed and developing markets.

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Frequently Asked Questions

How Does Bitcoin Compare to Gold as an Inflation Hedge?

Like gold, bitcoin’s built-in scarcity helps protect it against inflation, but unlike gold, it remains significantly more volatile and less stable.

What Roles Does Cryptocurrency Play in Countries With High Inflation?

In countries with high inflation or rapidly devaluing currency, cryptocurrencies can hedge against inflation and enable lower-cost local and cross-border transfers.

What Makes Bitcoin Inflation-Proof?

Bitcoin is considered inflation-proof because of its hard-coded supply limit of 21 million coins, a rule embedded in its protocol since its inception.