Crypto gains appeal as inflation hedge

Most people outside the digital currency universe might not be surprised to learn that more than a third of current investors in the space describe it as speculative money. But for those deeply involved in the cryptocurrency craze, that seems like a high percentage of speculators.

“It surprised me that 35% of investors see their investments as primarily speculative; I thought a lot more people would say it was for the diversification merits,” said James Butterfill, investment strategist at CoinShares, which sells investments in digital currencies.

According to an investor survey completed two weeks ago, only 25% of cryptocurrency investors view it as a diversification tool.

That finding surprised Butterfill because of the growing threat of inflation and the way digital currencies are generally believed to work as inflation hedges.

In what CoinShares is touting as the first bimonthly survey of digital currency investors, Butterfill debuted his zeitgeist question on whether investors view inflationary pressures as transitory, as the Biden administration has been arguing, or as more of a permanent economic reality.

The findings showed that nearly 60% of respondents regard the current inflation as permanent.

Considering that the survey respondents were all investors in digital currencies, Butterfill expected that a larger majority would see inflation as more permanent.

“I had suspected that if you are buying Bitcoin, one of the rationalities is inflation,” he said. “There aren’t that many real assets to choose from and there is an increasing correlation between inflation and digital assets. The last three to four years, we’ve seen increasing correlation between inflation and Bitcoin.”

In terms of current opportunities in the crypto space, 42% of respondents see Ethereum as having the most compelling growth outlook, followed by Bitcoin at 18%.

Bitcoin has a market capitalization of more than $900 billion, more than double that of Ethereum at $397 billion.

While those onboard are apparently finding multiple reasons to invest in crypto, any reluctance can be traced to a narrow list of reasons.

Politics, government bans and regulations combine to make up 58% of the perceived risks for digital assets, according to the research.

Among the survey respondents who are not currently investing in digital currencies, 21% cited regulations, followed by corporate policies at 19%.