Abstract
This study comprehensively investigates Bitcoin?s efficacy as a hedge against inflation through an integrated stochastic modeling and econometric framework. Utilizing daily Bitcoin and gold prices (2015-2024) and monthly U.S. CPI inflation data, we model Bitcoin?s extreme volatility characteristics using Geometric Brownian Motion (GBM), Merton Jump-Diffusion, and GARCH-family specifications. The inflation-hedging effectiveness is quantitatively assessed using correlation analysis, regression frameworks, and hedging metrics. Results demonstrate that Bitcoin exhibits weak and statistically insignificant correlation with inflation (? = ?0.014, p = 0.4876), comparable to gold?s performance (? = 0.025, p = 0.2228). Among all models, ARIMA- EGARCH provides the best fit (AIC = -8841.98). Hedging effectiveness measures reveal minimal variance reduction for both Bitcoin (0.0202%) and gold (0.0624%). The findings challenge Bitcoin?s classification as ?digital gold? and suggest it behaves primarily as a speculative asset rather than a reliable inflation hedge during the study period.
Keywords
Bitcoin, Inflation Hedge, GARCH Models, Jump Diffusion, Stochastic Processes, Financial Econometrics, Cryptocurrency.
Citations
IRE Journals:
Folorunso Tobi Emmanuel, Ini Adinya "Analyzing Bitcoin?s Inflation-Hedging Capacity Through Stochastic and Econometric Models" Iconic Research And Engineering Journals Volume 9 Issue 5 2025 Page 2567-2575 https://doi.org/10.64388/IREV9I5-1712369
IEEE:
Folorunso Tobi Emmanuel, Ini Adinya
"Analyzing Bitcoin?s Inflation-Hedging Capacity Through Stochastic and Econometric Models" Iconic Research And Engineering Journals, 9(5) https://doi.org/10.64388/IREV9I5-1712369
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