Bitcoin used to hate inflation. Now it might be the opposite

Bitcoin BTC$80,830.47 continues to rally in a move that defies the typical inflation playbook, raises the question of whether the cryptocurrency has quietly crossed over from risk asset to inflation hedge.

The leading cryptocurrency by market value has risen 19% in just over a month, topping $80,000 on Monday for the first time since January. The rally comes as oil hovers above $100 and Bloomberg’s commodity futures index has jumped to a decade high, pointing to inflation in the pipeline. Meanwhile, U.S. consumer inflation expectations.) are surging.

In the standard playbook, this combination is considered bearish for bitcoin. Rising inflation means the Federal Reserve is likely to keep interest rates higher for longer, while higher rates mean attractive returns on supposedly safe assets such as U.S.

Treasury notes and less incentive to invest in yield-less assets like bitcoin. This logic has worked several times before, most notably in 2022, when the Fed hiked rates aggressively to tame inflation, which partially catalyzed that year's bitcoin crash.

This time is different

But this time, bitcoin is not following that script. Some analysts are acknowledging the disconnect plainly, raising questions about the durability of the rally. Others say something more fundamental is happening.

"Macro signals remain divided, with commodities pricing supply-side stress while risk assets continue to trade higher. This divergence highlights a growing disconnect across asset classes and raises questions about the durability of the current risk-on environment," analysts at prominent and long-running exchange Bitfinex said in a report shared with CoinDesk.

Inflation hedge

A different interpretation is gaining traction, suggesting a shift in how BTC is used: from a risk asset to an inflation hedge. And this interpretation is not just circumstantial but backed by renewed inflows into the spot ETFs.

Since March, the 11 U.S.-listed spot bitcoin exchange-traded funds have raised $4.45 billion in investor capital, nearly reversing the massive outflows during the autumn that weighed on the spot price at the time. Most of these inflows are seemingly bullish directional bets rather than the once-popular non-directional arbitrage play, which has not fallen out of investor favor.

"The more interesting shift is happening on the institutional side. Continued inflows into bitcoin ETFs point to a broader change in how hedging is approached. Gold is no longer the default — digital assets are increasingly being considered alongside it, not after it," Ryan Lee, chief analyst at Bitget Research, said in an email.