In May 2020, billionaire hedge fund manager Paul Tudor Jones announced that he’d sunk 2% of his fund’s capital into Bitcoin as a hedge against what he called the Great Monetary Inflation – the creation of trillions of US dollars to withstand the economic shocks of COVID-19.

While few outside the cryptosphere took much notice at the time, one could argue that the entry of such a powerful bastion of traditional finance did as much as anything else to unleash the record-breaking bull run that followed.

By taking an as yet undiagnosed problem (runaway inflation) and pairing it with an inconceivable solution (Bitcoin), Tudor Jones opened the door for other investment funds, companies and ultra high net worth individuals to take the plunge.

Yet with inflation soaring and the price of Bitcoin down 40% off its all-time high, it’s worth asking: was Tudor Jones right? Or did he overestimate the capacity of the original cryptocurrency to stand strong in the face of generational inflation?

Bitcoin was designed from the outset to be a deflationary counterpoint to central bank monetary policy. Satoshi Nakamoto, Bitcoin’s anonymous creator, made their intention clear with the Times headline embedded in Bitcoin’s genesis block: “Jan/03/2009 Chancellor on brink of second bailout for banks.”

By algorithmically ensuring that there would only ever be 21 million Bitcoins and that their rate of emission would decline over time, Nakamoto created a blueprint for a deliberately deflationary currency, a fraud-resistant monetary system immune from such reactive policy making.

The devastation of the post-GFC era should have been fertile ground for such an idealistic ethos. But in the free-wheeling, up-only decade that followed, fears of central bank overreach and inflationary spirals became the province of doomsayers, gold bugs and alt-finance cranks.

Bitcoin, if it was paid any attention at all, was seen as a currency analogue rather than a store-of-value, interesting primarily for its ability to transmit value quickly and directly, anywhere in the world.

And then came the crushing impacts of the novel coronavirus.

To prevent wholesale economic collapse, central banks began printing money at an unprecedented pace, spurring a similarly unprecedented surge in risk-on assets – equities, commodities, cryptocurrencies. Money was cheap and investors acted accordingly.

Over the next year-and-a-half, the total cryptocurrency market cap grew from US$150 billion to almost US$3 trillion. The price of one Bitcoin went from US$3,000 to US$69,000. It seemed like this was exactly what Bitcoin was designed for: to be sound money in a world gone mad.

The blood-letting of the past six months have forced many to reconsider their position. Bitcoin kept going up until the first signs of actual inflation appeared. Twinned with the wind-down of central bank quantitative easing and the looming prospect of major interest rate rises, overheated markets have definitively cooled – and few have cooled as much as cryptocurrency.

So, does this put an end to the idea that cryptocurrency can act as a hedge against inflation?

First, we have to draw a distinction between Bitcoin and the thousands upon thousands of cryptocurrencies that have followed in its wake (known collectively as altcoins).

Whereas there will never be more than 21 million Bitcoin, the altcoin market is inflationary by its very nature. Anyone can create and release a cryptocurrency, and many do. While plenty of altcoins have compelling use cases and valuations, there’s no security in scarcity like there is with Bitcoin.

Second, it’s important to put the current downtrend in context. While Bitcoin may be 40% off its recent highs, it’s still in an unbroken uptrend from that genesis block in 2009. And every year the purchasing power of fiat currency drips, little by little, and then, suddenly, a lot. As crypto analysts are fond of saying, when in doubt, zoom out.

Monetary policy is something that plays out over the course of years and decades. Cryptocurrency’s volatile price swings take place over the course of days and weeks. Reconciling the two is one of the most difficult parts of being an investor in this rapidly evolving asset class.

Perhaps the current correction could best be considered a necessary breather after a twenty-fold increase in market value in little over a year. Even now, Bitcoin is up more than 1000% from its early pandemic lows. Tudor Jones’ decision to use Bitcoin as an inflation hedge still looks like a canny one.

Bitcoin’s place in the global financial system is only now beginning to take shape. Whether it ends up as an inflation-resistant store-of-value, a medium of exchange, a new commodity class or some strange admixture of the three, the great deflationary experiment could be something worth paying attention to over the next 5, 10 or 20 years.

Perhaps 2% would do it.

Luke Ryan is the Head of Content at CoinJar, Australia’s longest-running cryptocurrency exchange.