Inflation and Crypto: What You Need to Know

What is Inflation?

(Source: statitsta.com)

What Role Does Crypto Play During Inflation?

Is Bitcoin an Effective Hedge Against Inflation?

  • While fiat currency can be manipulated with increased money printing or shifting interest rates, cryptocurrency does not follow the same rule.
  • Bitcoin or any other crypto- just like gold- is not tied to the value of a particular currency like the US dollar. Plus, Bitcoin is decentralized and not controlled by a group of companies or stakeholders. Instead, Bitcoin is an international asset class that reflects demand across the globe. Therefore, Bitcoin altogether avoids many of the political and/or economic risks associated with fiat financial markets around the world.
  • Bitcoin has a limited supply of 21 million coins, and as of the beginning of 2022, about 19 million of these bitcoins have already been minted. This proves Bitcoin a better inflation hedge than even most other cryptocurrencies, as this way new coins are released into circulation methodically and there will only ever be a certain number of coins, eliminating the risk of inflation.
  • Bitcoin possesses all the qualities that make gold a good hedge against inflation- it’s secure, easily interchangeable, durable, and scarce. However, in addition to all that, Bitcoin is also portable, more decentralized, and transferable. Since the supply of gold is to some extent controlled by powerful countries like the U.S., China, and European countries like Germany, in theory, Bitcoin can also be protected more easily than a precious metal like gold that has physical existence.
  • In countries prone to hyperinflation and political crises, a digital currency like Bitcoin brings forth a much better means of exchange than fiat money.

Stablecoins Can Also Prove to be a Good Inflation Hedge

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