Abstract

Many investors have relied on Bitcoin as a hedge against inflation. However, differences in inflation measurement and monetary policies across countries make it difficult to determine whether Bitcoin effectively serves as an inflation hedge. This study examined Bitcoin’s effectiveness as an inflation hedge in the United States and India using monthly data on Bitcoin returns and Consumer Price Index (CPI) changes from January 2015 to December 2024 (N = 118, after first-differencing and lag alignment). The study employed Ordinary Least Squares (OLS) models, bivariate Vector Autoregression (VAR) Granger causality tests, Bai–Perron Structural Break Analysis, Impulse Response Functions (IRFs), and Quantile Regression analyses. The findings revealed no significant relationship between CPI and Bitcoin returns in either the United States or India, providing no empirical support for the Fisher Hypothesis. However, Granger causality results showed that lagged Bitcoin returns significantly predicted future U.S. CPI values, while no such relationship was observed for India. The predictive power of the model for the U.S. was lost after October 2022 due to the crypto winter phenomenon. This indicates that Bitcoin is not used as a hedge against inflation but is rather considered a financially driven information asset, which is subject to market influences.

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