Cryptocurrency and Macroeconomic Stability: Can Bitcoin Protect Against Inflation?

Abstract

This research paper discovers whether Bitcoin provides protection against inflation in Turkey which experienced hyperinflation and financial instability during covid-19. This topic gets attention after global economic fluctuations. Using stationarity tests, GARCH volatility models, and Quantile Regression analysis, the study finds that Bitcoin does not exhibit a consistent negative correlation with inflation. Instead, Bitcoin reacts more to monetary expansion (growth rate) and interest rate changes, behaving similarly to speculative risk assets rather than a stable store of value.The results suggest that Bitcoin is not a reliable inflation hedge but rather a liquidity-sensitive asset influenced by macroeconomic policies. While Bitcoin has seen increased adoption in hyper inflationary economy Turkey, its high volatility limits its effectiveness as a long-term inflation protector. Policy recommendations include strengthening financial regulations, implementing transparent risk disclosures for investors, exploring Central Bank Digital Currencies (CBDCs) as stable alternatives, and promoting diversified inflation-hedging strategies. The findings provide critical insights for policymakers, investors, and financial institutions regarding Bitcoin’s role in global economic stability and inflation management.