Analyzing Bitcoin?s Inflation-Hedging Capacity Through Stochastic and Econometric Models

@article{1712369,
      author = {Folorunso Tobi Emmanuel, Ini Adinya},
      title = {Analyzing Bitcoin?s Inflation-Hedging Capacity Through Stochastic and Econometric Models},
      journal = {Iconic Research And Engineering Journals},
      year = {2025},
      volume = {9},
      number = {5},
      pages = {2567-2575},
      issn = {2456-8880},
      url = {https://www.irejournals.com/formatedpaper/1712369.pdf},
      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.},
      month = {November},
      doi = {https://doi.org/10.64388/IREV9I5-1712369}
  }