Annual inflation in the United States recently hit 5%, the highest level in nearly a decade, and it’s also skyrocketing in many other parts of the world. Some experts are worried that this inflation will linger and scar the world’s economy. In light of such concerns, some experts have suggested that Bitcoin and cryptocurrency may be a great hedge against the inflationary cycle.
Bitcoin is an excellent idea to protect against galloping inflation.
Bitcoin is an attractive investment choice for people looking to protect themselves against galloping inflation. The limited supply and decentralization of the cryptocurrency make it much better than other assets for storing value. However, it’s essential to keep in mind some risks associated with this kind of investment.
The supply of bitcoin is capped at 21 million coins, and its production speed decreases by 50% every four years. According to basic economics, the price of scarce assets tends to rise over time. Many prominent BTC bulls, such as billionaire hedge fund manager Paul Tudor Jones, believe that bitcoin is a better inflation hedge than gold.
It’s more volatile than gold.
Gold is one of the most popular forms of asset storage and has served this purpose for millennia. The price of gold has risen whenever the economy has declined, and a recession is imminent. It has the added benefit of providing a hedge against market corrections. On the other hand, Bitcoin was launched in 2009 and only recently gained widespread recognition. If you are considering investing in gold or Bitcoin as a hedge against inflation, it is essential to understand how they differ from one another and make a decision accordingly.
One reason for Bitcoin’s volatility is that it is dependent on media effect, investor sentiment, and several regulatory actions. This media effect and hype can lead to quick decisions and drive prices up and down. On the other hand, Gold has a stable price and is not as volatile as Bitcoin.
It’s a stablecoin
Bitcoin is a stablecoin that protects against galloping inflation by keeping its value stable. This type of coin is backed by a reserve usually gold, cash, or short-term corporate debt. The budget serves as a security for the stablecoin, and whenever a stablecoin is redeemed, the reserve replenishes itself with an equal amount of assets.
Another benefit of stablecoins is that they are easy to use and can be easily transferred. While traditional methods are cumbersome and require multiple banks and intermediaries, stablecoin transfers are instantaneous and offer low fees. In addition, the issuers of stablecoins earn money by charging issuance and redemption fees.
It’s detachable from the traditional economy.
For those concerned about the devaluation of fiat currencies, bitcoin’s detachability from the traditional economy makes sense. The problem is that the central banks have printed enormous amounts of money to address a comatose economy and the Zika virus. The fear of galloping inflation has intensified the hunt for investments that will hold value. As long as Bitcoin is detachable from the traditional economy, investors are protected from galloping inflation.
As long as the federal government continues to spend uncontrollably, it will likely continue to experience inflation, which will be a significant challenge for the United States in the coming years. The rapid increase in the federal debt, increasingly financed by the Federal Reserve’s printing press, will further accelerate the problem. This will force policymakers to make a Solomonic choice between protecting American consumers from the inflationary spiral and continuing to spend deficits. This compounding problem will make Bitcoin’s detachability from the traditional economy even more important.
Conclusion
Investing in Bitcoin is a great way to protect against inflation, and its limited supply makes it an excellent long-term hedge. However, it is not for everyone. The volatility of Bitcoin is relatively high, and investors who prefer safety and stability should look to gold or other high-yield stablecoins.
It is a brilliant idea to stay on top of inflation trends and watch economic developments closely. You can consult experts to help you make the best investment decision. You can use a website like Ally Invest to make investing easy, regardless of market conditions. Be sure to read the terms and privacy policies before investing.
