Bitcoin? Why not! But for whom? Empirical investigation of inflation hedging properties of cryptocurrencies

In turbulent inflationary times, unevenly rising prices inevitably diminishes purchasing power of investors. The main objective of this research is to examine whether investing in cryptocurrencies can protect investors from rising inflation. This study uses inflation indicators from Switzerland, United States and Turkey as predictors variables for cryptocurrencies returns. We use monthly indicators for the three countries and also daily for the US. As a quick scan for hedging abilities we use Pearson’s correlation coefficient. Grounded on the Fisher theory, the main model used is the extended version proposed by Fama and Schwert (1977) followed by an OLS estimation of the so called “Fisher coefficient”. Using monthly frequencies, the regression coefficients reveal that hedging capabilities differ per country. However such estimates are not statistically significant to consider cryptocurrencies as a hedge against inflation in monthly frequencies. The OLS estimates in daily frequencies provides more significant results but still not statistically significant.