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Rather than a hedge against dollar inflation, Bitcoin and cryptocurrencies can be considered as an alternative to the dominant system entirely.

The U.S. Federal Reserve chairman, Jerome Powell, recently said that the Fed will now shift its focus from targeting inflation to closing “unemployment shortfalls.” The Fed is doubling-down on the same inflationary policies that it used during the 2008 global financial crisis.

Speaking at a virtual Jackson Hole event recently, Powell said the Fed is not going to raise rates soon. He added that the Fed would tolerate higher inflation, departing from the historical norm of a 2% inflation target. Cheap money and higher inflation policy take quantitative easing to an entirely new level.

Meanwhile, the dollar’s value fell against the euro, and gold rallied back to its 1950 highs. Bitcoin (BTC) has plateaued; Ether (ETH) stabilized; and stocks have yet again rallied. The Fed cannot reverse the course from its new policy so easily, however.

As governments print infinite amounts of money through bailouts and quantitative easing, inflation will possibly send core prices higher. It is obvious that the fiat system is imperfect. The cryptocurrency media uses the threat of inflation to proclaim the benefits of cryptocurrencies. Against a backdrop of shrinking gross domestic products, economic slowdown, government bailouts and fiscal stimulus, Bitcoin and cryptocurrencies have been used as an inflation-resistant hedge. Some believe that you should buy Bitcoin because crypto serves as a hedge to the broken fiat system.

Bitcoin, however, will stay as a nascent technology. In times of economic uncertainty, investors still prefer to flock to gold and stocks as safe-haven assets. In the case of gold, according to Morningstar data, the S&P GSCI Gold Index gained 7.2% in the last months of 2018, while the stock market declined nearly 14%. Even during the most bear market when equities dropped by 33%, the gold index declined by only 2%. The price of gold then shot up over the next few months to record levels. Gold volatility, however, can go both ways. Almost a third of fund managers polled in the August 2020 Bank of America Global Fund Manager Survey noted that gold was overvalued.

From the Fidelity president filing for a new Bitcoin fund to multi-billion-dollar Bitcoin and cryptocurrency asset manager Grayscale reporting its biggest-ever quarterly inflows of almost $1 billion, institutional demand for Bitcoin has been rising amid the COVID-19 pandemic. This institutional attention shows the seriousness with which players have been considering Bitcoin as an investable asset.

Institutional money is only just beginning of cryptocurrency ecosystem, and so the market is still relatively immature and fragmented. Crypto requires more time to grow before it is widely considered a safe-haven asset.

Investors recently use Bitcoin as a store of value since they think the prices will increase in fiat terms. Be warned: This shouldn’t be the sole intention of investing in the crypto market. If people are putting their money in this space because the financial system is collapsing, then we will see an unhealthy rise followed by a collapse in the crypto index.

In such a scenario, investors will invest in the industry not because of crypto technology or the deflationary nature of Bitcoin but because of fear of missing out. Those who suffer from FOMO believe that since everyone is investing, they should do that too. We saw this happen during the ICO mania of 2017 when investors primarily wanted to make money, not to invest in innovative technology.

Investors and crypto analysts often talk about crypto in relation to fiat currency, but it was not the intention of cryptocurrencies to be correlated in such a way. The intention was to create an alternative to fiat.