Bitcoin (BTC) hit an all-time high of $126,000 (approximately 184.7 million won) last October, but it still hasn't surpassed $100,000 (approximately 146.4 million won) in 2020 dollars. Alex Son, head of research at U.S. cryptocurrency investment firm Galaxy Research, recently stated in a report that when adjusted for inflation, Bitcoin's "real peak" price would have been $99,848 (approximately 146.16 million won).
Son analyzed Bitcoin's price by converting it into "purchasing power" based on the Consumer Price Index (CPI) as of 2020. He explained, "I calculated Bitcoin's inflation-adjusted peak price by incorporating all monthly price data from 2020 to today." He added, "If we look at real prices, not nominal prices, Bitcoin has yet to break through the six-digit mark."
According to the U.S. Bureau of Labor Statistics, the CPI rose 2.7% over the past year, without seasonally adjusting, and the purchasing power of the U.S. dollar has fallen by approximately 20% since 2020. In other words, today's dollar has a purchasing power of only 80 cents compared to 2020. Therefore, when converted to 2020 dollars, the recent Bitcoin price increase is actually not much different from the past.
Reinterpreting Asset Value in the Face of Inflation
Interpreting Bitcoin's price in terms of its real value has implications beyond a simple price increase. US prices have continued to rise since 2020, currently averaging 1.25 times higher than their 2020 levels. Inflation, in particular, soared to over 9% in mid-2022, significantly exceeding the Federal Reserve's 2% target. This context suggests the growing importance of asset valuation based on real purchasing power.
The depreciation of the US dollar is also closely related to this. The Dollar Index (DXY), which measures the dollar's value against a basket of major currencies, has fallen 11% this year to 97.8, and in September, it hit a three-year low of 96.3. The DXY has been trending downward since October 2022, indicating the US dollar's weakness on the global stage.
Debasement Trade and the Role of Cryptocurrencies
This currency devaluation phenomenon has strengthened a strategy known among investors as the "debasement trade." This approach involves investing in assets whose real value will remain stable or increase when the purchasing power of government-issued currency is expected to decline. Cryptocurrencies, including Bitcoin, are perceived as a type of "store of value" in this context.
Galaxy Research stated, "In a structure where inflation continues and the value of the dollar weakens, it becomes increasingly important to look at the real value of assets," adding, "Digital assets can be an important alternative in this trend."
In conclusion, even though Bitcoin has reached a nominal all-time high, it has yet to recover its real all-time high after adjusting for inflation. Amid rising inflation and a declining dollar in the US economy, this could become a new investment framework for the cryptocurrency market.
๐ Market Interpretation
Bitcoin's all-time high is merely a nominal figure; in terms of real purchasing power, it still hasn't surpassed its 2020 peak. This suggests that cryptocurrency investors need to consider the impact of inflation.
๐ก Strategy Points
Amidst high inflation and a weak dollar, Bitcoin continues to be re-evaluated based on its real value. This positioning offers a favorable position for "deviation trade" strategies.
๐ Glossary
- CPI: U.S. Consumer Price Index, an economic indicator that measures the rate of price increase.
- DXY: US Dollar Index, which represents the value of the dollar against major currencies.
- Debasement trade: A strategy that invests in real-valued assets to hedge against currency depreciation.
๐ก Want to know more? AI-prepared questions for you:
A. When adjusted for inflation, the Bitcoin price in 2020 dollars reached a high of $99,848. This reflects the price fluctuations from 2020 to the present, and is calculated to be less than $100,000 at the time. Inflation adjustment is a method of comparing the purchasing power of money.
A. The Consumer Price Index (CPI) is an indicator of the U.S. Bureau of Labor Statistics that measures changes in the prices of a basket of goods and services consumed by everyday life. The CPI has risen by 2.7% over the past 12 months, reducing the purchasing power of the dollar. Since 2020, the dollar has fallen by approximately 20%, with one dollar today worth only 80 cents. This makes past Bitcoin prices appear low when converted to current values.
A. During the COVID-19 pandemic, inflation soared to 9% in mid-2022 and still exceeds the Federal Reserve's 2% target. Consequently, goods prices have increased 1.25 times since 2020, devaluing the currency. Against this backdrop, adjusting for inflation becomes crucial when assessing the real value of assets like Bitcoin.
A. The DXY, an index that compares the dollar against a basket of other major currencies, has fallen 11% this year to 97.8. It hit a three-year low of 96.3 in September and has been declining since October 2022. This indicates the global weakening of the dollar, encouraging investment in assets that hedge against currency depreciation.
A. Bitcoin may appear high in nominal terms, but when adjusted for inflation, its real purchasing power has yet to surpass its 2020 peak. This helps us understand the true value of assets in a world where inflation is diminishing the value of money, and it prompts us to consider strategies for preserving value amidst a weak currency.
TP AI Precautions
This article was summarized using a TokenPost.ai-based language model. Key points in the text may be omitted or inaccurate.
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