Agreed that we don’t have enough data, but the current macro environment of insane money printing by the central banks is unprecedented. The closest we have been to this much money printing/quantitative easing is during the last 10 years! And as you say, Bitcoin has outperformed in the last 10 years, therefore I don’t see any reason why it can’t outperform in the next few years as well.

Agreed, it is still a nascent asset class and has got its volatility, but recently there have been some key developments that are probably not covered in mainstream news for eg: Fidelity has applied to the regulators to start Bitcoin ETF,  a Nasdaq listed Firm (Microstrategy) has converted c$500m cash into Bitcoin as they are worried about asset inflation.  This is probably just the beginning of the mass adoption for Bitcoin.

You can listen to this podcast from Microstrategy CEO on why he bought Bitcoin on his balance sheet:
https://www.youtube.com/watch?v=WrR95PFYDFQ&t=2487s

I’m not against Bitcoin, in fact, I own some crypto. But I decided to leave Bitcoin out because we simply don’t have enough data for it. Sure it has outperformed pretty much everything during the last 10 years of low-inflation, but does that make it a good candidate against inflation?

It was built based on this argument because the amount of available BTC is limited and mining new ones gets harder and harder. Whether the price argument holds true during high inflation remains to be seen.

You raised some good points, Daniel. I have no doubts the standard of living has improved over past generations. The world is a much better place compared to 20-30 years ago.

Wages do increase in line with inflation. As I also write in the article, inflation is not making you poorer if earnings rise too. I fully agree it’s not an issue for those earning and spending their salary.

But what about savers? I don’t think inflation is some arbitrary number we shouldn’t account for.

To give you an example, in 2010, your £10,000 could buy you 400 tickets from Reading to London. In 2020, the same amount can only buy you 282. Sure, the standard of living has improved (faster trains, more frequent, better smartphones while you wait etc) and earnings have improved too. But that doesn’t change the fact that for you, the saver, £10,000 in 2020 is not the same £10,000 you had in 2010.

I’ve picked the rail fares as an example but housing follows the same trend (and perhaps restaurants and leisure too). I’d say technology is an exception and it’s true that it’s deflationary.

I’m not saying everyone should take risks and start investing. What people do with their cash is up to them. Cash in the short-term is great but in the long-term, I think there are better options.

Feels like more of a bizarre dark art than an investment, to me.
Some crazy volatility there – see https://www.coindesk.com/price/bitcoin
What makes you feel it is safe?!

However, assume most people don’t invest as such, and that most ‘money’ i.e. wealth in any economy, and certainly at a global level, is anyway tied up in physical things, in property, in production processes, in land, in intangible assets, and so on, then what do we have?

I have ten grand in the bank earning no interest, but while its value is IN THEORY declining against some (non-existent) fixed reference point, year on year, and to my utter disgust, IN REALITY the value of all ‘money’ remains unchanged.

Your consumer price examples (beer, bread etc.) mean nothing if wages increased by as much or more than the price of a pint or a week’s rent. And what about the general increase in wealth due to returns from productivity, the falling ‘relative’ price of cars, computers, smartphones, and so on?

But more importantly? Invariably, average returns on cash & investments across the whole population- so all the money, all the wealth – lag the inflation rate, most or all of the time.

Summary: no one is stealing anything. The cash in everyone’s pocket fluctuates (mostly, not always, declines) in value from year to year, but in contrast, from generation to generation, we’re all getting richer, iwitness, for example improvements in healthcare, longer lifespans, greater opportunities to travel, more Netflix, and so on.

Sure, investors can (sometimes) achieve higher returns by taking risks, or investing time in knowing better how to employ what savings they might have. But if you lack time, or can’t be bothered, leaving the balance in your current account, to drift, along with the value of the vast majority of the country’s wealth, is probably a perfectly reasonable option. No high returns, but no worries either.

My kids can afford more beer than I ever could when I was their age. I rest my case.

Very good suggestion, Andrew, thanks for that. I have now replaced the graph to show how UK house prices have kept up with CPI inflation.

For curious readers, I’ve also posted the actual UK house prices adjusted for inflation as listed by Nationwide. It’s an Excel spreadsheet with a graph in it: https://www.nationwide.co.uk/-/media/MainSite/documents/about/house-price-index/downloads/uk-house-prices-adjusted-for-inflation.xls