LONDON — Cryptocurrencies are an alternative to copper — not gold — when it comes to hedging against inflation, according to Jeff Currie, global head of commodities research at Goldman Sachs.

Inflation is rising as the global economy recovers from the effects of the Covid-19 crisis as central banks keep monetary policy historically loose and demand outstrips supply on multiple fronts. The U.S. Federal Reserve’s preferred inflation gauge, the core personal consumption expenditure index published Friday, increased 3.1% in April from a year earlier, exceeding expectations.

Gold and crypto have been deemed as hedges against rising prices, with crypto bulls in some cases championing bitcoin as a modern-day replacement for bullion. Inflation hedges aim to protect the investor against a fall in the purchasing power of money due to rising prices.

Gold prices have risen almost $200 since the beginning of April to hit a four-month high, fueled by a weakening U.S. dollar and an increase in demand on the back of rising inflation expectations.

Meanwhile, cryptocurrencies have been on a wild ride. Bitcoin, for instance, is up more than 25% year-to-date, but down more than 25% over the past three months.

Speaking to CNBC’s “Squawk Box Europe” on Tuesday, Currie said investors should see digital currencies not as a substitute for gold when looking at inflation hedges, but rather noted their similarities to copper.

“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,” Currie said. He noted that both bitcoin and copper act as “risk-on” inflation hedges, compared to gold, which is viewed as a safe haven, or “risk off.”

Copper surged to all-time highs in mid-May before suffering a sharp decline towards the end of the month, only to rebound again last week.

“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,” Currie said.

“Gold hedges bad inflation, where supply is being curtailed, which is … focused on the shortages on chips, commodities and other types of input raw materials. And you would want to use gold as that hedge,” he added.

‘Anticipated’ inflation and rate hikes

Meanwhile, in a note Monday, Goldman Sachs suggested that commodities broadly remain the best inflation hedge for investors looking for protection from a potential downturn.

In the note, Currie’s commodities research team noted that since stocks price in forward expectations for earnings and growth, they are a good hedge of “anticipated inflation.” However, once inflationary expectations become imminent enough to suggest central banks may be forced to hike interest rates, equities cease to be as useful as an inflation hedge, they argued.

“Commodities are spot assets that do not depend on forward growth rates but on the level of demand relative to the level of supply today,” the note said.

“As a result, they hedge short-term unanticipated inflation, created when the level of aggregate demand is exceeding supply in the late stages of the business cycle.”