Crypto still Solid a Hedge against Inflation, says Economist

Paigambar Mohan Raj
Source: Money

Juan M. Villaverde, the editor of Weiss Crypto Portfolio and Weiss Crypto Investor, shared his thoughts on inflation, how it occurs, and how to stay vigilant.

Growing up in Latin America has taught Villaverde two things. First, he says, is how to mix a “mean” margarita. And second is how to deal with inflation.

Vilaverde, who is also an economist, says,

“The first thing you should know about inflation is that it’s not going away.”

He says that although we hear officials in high places and television networks talk about inflation going away, it is always followed by

“just as soon as interest rates climb above some magical threshold.”

The current global scenario has created the perfect environment for explosive inflation. COVID-19 lockdowns, geopolitical chaos and reckless money printing have all contributed to a 40-year high inflation rate of 8.5% (although some claim it is much higher).

Writing about the self-reinforcing character of the inflation mindset, Vilaverde states,

“When people expect inflation, they alter their behavior in ways that creates more of it.”

However, there might be some solace to be found in crypto. Could it be the asset that saves humanity from the vicious cycle of inflation?

Vilaverde’s article itself is titled,

“Crypto Is Still a Solid Hedge Against Inflation’s Runaway Freight Train.”

This begs the question…

Can crypto act as a hedge against inflation?

A hedge against inflation should, in theory, rise in value even if fiat currency’s purchasing power declines. Historically, gold and real estate were the go-to assets for inflation protection. During periods of inflation, the value of these assets often held steady or even increased. You can effectively protect your funds from the depreciating impacts of inflation by investing in these assets.

Bitcoin is the first and largest cryptocurrency out there. Bitcoin’s finite supply of coins is the fundamental reason that makes it a haven against inflation.

Moreover, financial institutions such as JPMorgan and Goldman, and Sachs, have already begun offering crypto to their clients. This only further proves the growing legitimacy of digital assets.

Additionally, ​​Fidelity, America’s largest retirement-plan provider, has announced that its clients and participants would be able to invest a portion of their retirement savings in Bitcoin.

Commenting on our current behavior pattern, Vilaverde says,

“The world is so addicted to free money that weening ourselves off it would swiftly lead to nukes flying and nations disintegrating. And because of this, everything is on autopilot.”