Bitcoin (BTC) is proving to be a better hedge against inflation compared to the U.S. dollar, as stated by the Federal Reserve. This unintentional acknowledgment was made in a blog post released by the St. Louis Fed in June 2022, which has since been updated to reflect the latest data. The post focuses on the purchasing power of Bitcoin in relation to the dollar when buying eggs, surprising readers with its findings.
While Bitcoin holders may have numerous other use cases for their BTC holdings, the Fed’s blog post zooms in on the buying power of Bitcoin in comparison to the dollar. To illustrate this, the anonymous author of the post analyzed the price of a dozen eggs in satoshis (the smallest unit of Bitcoin) and in USD since January 2021.
The post concludes that the price of eggs in BTC has fluctuated significantly, ranging between 2829 and 6086 satoshis, while the price in USD has been more stable. Additionally, the author points out that Bitcoin transactions are subject to transaction fees, which have occasionally spiked above $50. This implies that if someone were to purchase eggs with Bitcoin, they would need to put many more eggs in their basket to account for the transaction fees.
However, the included charts reveal that since reaching their peak in December 2022, the number of satoshis required to purchase a dozen eggs has decreased more significantly than the equivalent amount in USD. As of August 2023, BTC holders require 70% fewer satoshis for the purchase, while USD holders require 58% less USD.
Although the cost of eggs has increased for both currencies compared to the start of 2021 (39% for BTC and 73% for USD), the arbitrary timeframe chosen for comparison is deemed less helpful. At that time, the BTC/USD exchange rate was similar to its current level, and the U.S. Consumer Price Index (CPI) recorded a year-on-year increase below the Fed’s 2% target. Therefore, a longer-term perspective is necessary to gain a comprehensive understanding of Bitcoin’s performance.
Relative to Bitcoin’s last pre-halving year in 2019, the price of eggs is significantly lower today. The “eggflation” observed in 2023 can be considered a minor blip when compared to the bigger picture.
In USD terms, the average price of a dozen eggs was just above $1.20 in mid-2019, which is roughly 40% less than the current price. This data reflects solid price increases over the years.
With attention shifting towards the U.S. dollar this month due to the U.S. dollar index (DXY) soaring to near one-year highs, analysts suggest that actions by foreign states may intend to rebalance the currency imbalance as their own currencies undergo challenges. Moreover, warning signs are emerging within the U.S. economy, with a looming recession in 2024 becoming increasingly likely. According to the Fed’s data, the odds of a recession in September were estimated to be nearly 60%, as bond yields surged in a phenomenon known as “bear steepening.”
It is important to note that this article does not provide investment advice or recommendations. Readers should conduct their own research and exercise caution when making investment decisions.