In real terms of purchasing power, Cryptocurrency has never hit a historic high above six figures, Galaxy Research discloses. New Galaxy Research analysis suggests that the phenomenal rise of Bitcoin to $126,000 in October was not as psychologically significant as many thought it was. The cryptocurrency reached its highest point of only $99,848 when adjusted to 2020 dollars, which is still below the desired six-figure mark by only $152.
The discovery was announced by Alex Thorn, the head of research at Galaxy, on Tuesday, and it explains why the nominal all-time high of Bitcoin declines when adjusted against dollar devaluation. The analysis takes into consideration the Consumer Price Index decreases in purchasing power in each print on inflation since 2020 to the present, and it is a sobering view of real value.
Dollar’s Purchasing Power Erodes Significantly
Since 2020, the United States has been facing significant inflation, and the dollar has lost about 20% of its buying power. According to the Consumer Price Index, the prices of goods are now 1.25 times higher than they were in 2020, which means that a dollar today will only buy 80% of what it would have bought in 2020.
During the COVID-19 pandemic in mid-2022, inflation shot to over 9% and remains above the 2% target rate of the Federal Reserve. The CPI report of November showed that inflation increased 2.7% in the last 12 months, which shows the continuing difficulty of American consumers and investors.
The Dollar Currency Index has fallen by 11% since January and is now at 97.8, having reached a three-year low of 96.3 in September. This currency disadvantage has contributed to the so-called debased trade policy, where investors buy assets that will retain their value as fiat currencies become less useful.
The inflation-adjusted performance of Bitcoin shows the need to take into account the real returns instead of the nominal returns to assess investment performance over a multi-year horizon.
Bitcoin is currently trading at approximately $87,317, which is very low compared to its October peak, as the markets absorb several economic strains, such as the ongoing inflation fears. The analysis by Thorn highlights the importance of the traditional financial metrics to take into consideration the monetary debasement to offer the correct historical comparisons and realistic performance evaluations.
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