In an unexpected revelation, the Federal Reserve highlights that Bitcoin is proving to be a better hedge against inflation than the US dollar, albeit unintentionally. The St. Louis Fed, in a blog post originally published in June 2022 and recently updated, explores the comparative purchasing power of Bitcoin and the US dollar using a rather unconventional benchmark – buying eggs.
Bitcoin vs. US Dollar: The Curious Case of “Eggflation”
While Bitcoin enthusiasts typically have more ambitious uses for their holdings than buying eggs, the Federal Reserve’s blog post delves into this unique comparison. The anonymous author of the post tracked the price of a dozen eggs in Bitcoin (measured in satoshis) and in US dollars since January 2021.
Average price of a dozen eggs in satoshis chart (screenshot). Source: St. Louis Fed
The findings reveal significant price fluctuations in Bitcoin, ranging from 2829 to 6086 satoshis, far more volatile than the USD price of eggs. Additionally, the blog notes the need to factor in Bitcoin transaction fees, which can vary from a reasonable $2 to occasionally spiking above $50.
Bitcoin’s Performance Over Time
Despite the inherent volatility, the data charts demonstrate that since reaching their respective peaks in December 2022, the number of satoshis required to purchase a dozen eggs has decreased more significantly compared to the equivalent USD price. As of August 2023, Bitcoin holders need 70% fewer satoshis for the purchase, while USD holders require 58% less.
Average price of a dozen eggs in USD chart (screenshot). Source: St. Louis Fed
However, a broader perspective reveals that the cost of eggs has increased for both currencies since the beginning of 2021, with a 73% increase for USD and a 39% increase for Bitcoin. Yet, this specific timeframe doesn’t offer a comprehensive view of Bitcoin’s performance.
Long-Term Perspective on Bitcoin
A more insightful assessment comes when examining Bitcoin’s performance over the years. The price of eggs remains substantially lower than during Bitcoin’s last pre-halving year in 2019, with the 2023 “Eggflation” appearing as a minor blip.
In contrast, the US dollar has witnessed significant price increases in terms of egg purchases, with the average price per dozen barely exceeding $1.20 in mid-2019, representing a 40% increase compared to today.
Concerns of a Looming Recession
The article also touches upon the growing attention to the US dollar this month, as the US dollar index (DXY) approaches one-year highs. Some analysts suggest that actions by foreign states may attempt to address the currency imbalances they are facing, while the US economy exhibits warning signs of a possible recession in 2024, as indicated by the Fed’s data, with odds nearing 60% as of September.
In addition, bond yields are rising in what is referred to as “bear steepening,” further highlighting economic uncertainties on the horizon.