Commodities as an Asset Class: Essays on Inflation, the Paradox of Gold and the Impact of Crypto (Palgrave Studies in Classical Liberalism)

This book challenges the notion that commodities are always good hedges against inflation, which is the conventional belief today in financial markets. Specifically, it focuses on gold as a traditional hedge and the ways in which crypto assets are argued to be positioned as an alternative hedge against inflationary risk. The book engages with emerging debates around the performance of gold since the 2008 financial crisis, analyzing its characteristics, relationship with inflation, and the role of mining companies, and discusses ways that cryptocurrencies have replaced precious metals as an attractive asset class during an inflationary scenario. In considering the case of crypto as being or not a good inflation hedge, the book devotes particular attention to the theoretical financial and macroeconomic implications of a monetary system based on Bitcoin, dealing with the concept of money and the determination of Bitcoin’s supply and purchasing power. Additionally, it outlines the consequences that such a system would entail for the banking industry, and financial conditions involving interest rates, exchange rates, and the inflation-deflation dynamic. The book also analyses the relative impact of past and future events on the different commodity families. This work will be of interest to students and researchers in financial economics, macroeconomics, and monetary economics, as well as analysts and traders in financial and commodity markets. Foreword by John B. Taylor 7 Acknowledgments 10 Introduction 12 Reference 14 Praise for Commodities as an Asset Class 15 Contents 20 List of Figures 22 List of Tables 29 1 Are Commodities a Good Hedge Against Inflation? 30 1.1 Introduction 31 1.2 No-Arbitrage Model, Futures Curves, and Inflation Conditions 37 1.3 Using Commodities as a Hedge: A Brief Example and Some Observations 43 1.4 Commodities vs. Inflation (1960–2021) 59 1.4.1 1960–1970 61 1.4.2 1970–1980 62 1.4.3 1980–1990 62 1.4.4 1990–2000 64 1.4.5 2000–2010 65 1.4.6 2010–2020 65 1.4.7 Full Analysis 1960–2021 67 1.5 Agriculture and the Future of Energy 72 1.6 Inflation and Currencies 74 1.7 Conclusion on Commodities and Inflation 79 Bibliography 85 2 Precious Metals: The Bull Market that Faded (as of yet) 90 2.1 Introduction 91 2.2 Macroeconomic Perspectives and Inflation 92 2.3 Gold and Miners 117 2.4 Conclusion on Gold, Miners and Inflation 126 Bibliography 130 3 The Market’s New Gold and the Promise of Bitcoin 132 3.1 Introduction 133 3.2 What Is Bitcoin? 140 3.3 BTC as Money? 143 3.4 BTC Supply and Demand Fundamentals 159 3.5 The Financial System Under a BTC Monetary System 167 3.6 A BTC Monetary System and the Business Cycle 171 3.7 Some Technical Aspects of BTC and Its Scalability 172 3.8 Conclusion on BTC, Precious Metals, and Inflation 175 Bibliography 177 4 Final Thoughts on Commodities, Crypto, and Inflation 181 Bibliography 186 Index 187