Some say that cryptocurrency was born out of the necessity to tackle the soaring inflation. Can crypto really hedge against inflation?
Inflation in the US has soared to an all-time high of 8.5%. It is said to be the highest in the last 40 years. In general, inflation happens when the value of a currency diminishes over time, resulting in the increased price of goods and services.
Inflation is another reason your dad keeps saying about how things used to be cheap back in the day.
Soaring inflation – a boon or a curse?
Inflation, in general, can be bad for some and not so bad for others. Inflation can sometimes boost the economy and create new employment opportunities, while lower inflation triggers overspending and borrowing.
Soaring inflation will tear your pockets, and low inflation slows down the economic growth all together.
The money printing mechanism of the central bank will define whether the value of the money inflates or deflate. As for the argument that cryptocurrencies are a hedge against inflation, what is the statement backing this claim?
Can crypto save you from inflation?
Cryptocurrencies like Bitcoin have a fixed 21,000,000 supply. Unlike the government that can print money as per their decision. Experts suggest that this fixed and limited supply allows crypto to resist the soaring inflation.
The pandemic situation witnessed the government’s printing billions into the economy to meet the requirements and beat the scarce economic conditions created due to the pandemic.
When there is a crazy amount of money being printed, the value of money goes down. In that situation, assets like bitcoin, stocks and real estate are what will soar in value, said CEO of Monex group Oki Matsumoto.
To beat inflation, people usually deviate their money to alternative investments and assets that can maintain or increase their value in time. Gold has been considered the best alternative by many. But recently, with the increased adoption of cryptocurrencies, crypto has taken that position.
Of course, there is a definite question about the increased volatility of cryptocurrencies. But looking in the long term, the value of crypto has gradually increased with increased demand.
Inflation is a complicated economic notion that may be beneficial or harmful. Still, the general consensus is that it is disastrous when it rises too high and spirals out of control.
Even though inflation stayed constant last year due to the Coronavirus pandemic, it will project to climb shortly as expenditure increases and economies open up.
As a result, to protect themselves from future inflation, people and corporations invest in gold, real estate, and other assets. As we will witness, Bitcoin and other cryptocurrencies will play a significant role in hedging inflation.