Hedging Inflation Expectations in the Cryptocurrency Futures Market

We provide a first analysis of the inflation-hedging properties of Bitcoin and Ethereum futures contracts. Daily data on the futures markets of Bitcoin, starting in December 2017, and Ethereum, available since February 2021, reveal consistently positive responses to inflation expectations. We find cryptocurrency futures provide an effective hedge against inflation expectations and may provide a hedge against idiosyncratic market risk if the ensuing uncertainty is embraced by traders leading them to search-for-yield behavior. Risk that is more systemic—and not properly digested by financial markets—may lead futures contract holders to exit their positions ahead of expiration, leading to a bid down of futures prices