eshan-kaul/ECON-4984-Workshop-in-Applied-Policy-Analysis-Monetary-Policy-

We have all heard the countless Bitcoin backers claiming that Bitcoin is a bullet-proof hedge against inflation and is the best way to protect long-term wealth, and recently many established financial institutions have also been hoping onto this bandwagon. Their argument is simple. Bitcoin, unlike normal fiat currencies, has a limited, predetermined supply of coins that can be entered into circulation. This means that governments or central banks can not devalue the currency by increasing the supply. This limited quantity attribute has resulted in many individual and institutional investors liking bitcoin to gold which used to be believed as a hedge against the dollar. The goal of this project is to determine if there is any validity to the argument that cryptocurrencies can be used as a hedge against inflation. Are cryptocurrencies really a good method of protecting wealth from inflation and if so, do all cryptocurrencies work, or are specific currencies that work better than others. These questions are motivated by the larger questions of how does adjusting the money supply while maintaining the monetary base affects the greater economy, but for the purposes of this project, we will focus on tackling the more specific questions of what are the relationships between crypto and inflation? To address this issue we would like to collect relevant data on historical and current inflation rates along with data on the price patterns of at least one type of fixed supply cryptocurrency and one type of cryptocurrency with a flexible supply. The analysis will be broken down into two parts. The first part will compare the current/previous relationship between cryptocurrencies and inflation rates. The second part will then be to develop a model to estimate the future trends of cryptocurrencies and inflation rates to explore how the two might vary in the future.

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