Instead of gold, cryptocurrencies are an alternative to copper as a hedge against inflation, said Jeff Currie, global head of commodities research at Goldman Sachs.

Bitcoin has been deemed as a hedge against the rising prices, giving competition to the traditional safe-haven asset precious metal. As inflation hedges, these assets aim to protect the investors against the fall in the purchasing power of money due to rising prices.

Inflation has been the major focus for weeks now, with the U.S. consumer price index seeing its sharpest increase since September 2008 after it rose 4.2% in April from a year ago.

Investors are worried that a quick rise in consumer prices would prompt the central bank to hike interest rates earlier than expected. As we reported, some talks of tapering can already be heard.

Legendary investor Stanley Druckenmiller also said recently that the biggest risk to the bubble that can be seen in everything would be without a doubt – “inflation strong enough that the Fed responds to it.”

“The minute they start tightening, the equity market should go down a lot.”

However, Federal Reserve officials are still of the opinion that this inflation is transitory, and they are very much willing to let it run above their 2% target for some time before raising rates.

After topping out at $2,075 in August last year, bullion prices are finally showing some strength for the last two months. Gold is now back at $1,900 per ounce after falling to $1,675 in late March this year.

Bitcoin meanwhile had taken to trade sideways, currently around $37k following a 50% drawdown from ATH of $65k in mid-April.

According to Currie in an interview with CNBC, investors shouldn’t see cryptocurrencies as a substitute for gold when it comes to inflation hedges.

“You look at the correlation between bitcoin and copper, or a measure of risk appetite and bitcoin, and we’ve got 10 years of trading history on bitcoin — it is definitely a risk-on asset.”

He said Bitcoin and copper act as “risk-on” inflation hedges, unlike gold which is a “risk-off.” After surging to its ATH in mid-May before experiencing a sharp decline at the end of the month, Copper is rebounding yet again.

“There is good inflation and there is bad inflation. Good inflation is when demand pulls it, and that is what bitcoin hedges, that is what copper hedges, that is what oil hedges.”

Gold, on the other hand, hedges bad inflation, “where supply is being curtailed.”

In a note on Monday, Goldman Sachs suggested that commodities broadly remain the best inflation hedge while stocks are a good hedge against “anticipated” inflation.

Because commodities do not depend on forwarding growth rates but on-demand relative to supply, “they hedge short-term unanticipated inflation, created when the level of aggregate demand is exceeding supply in the late stages of the business cycle,” wrote Currie in the note.

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