Is Cryptocurrency More Than a Hedge Against Currency Inflation
By Jamie Green – Cryptocurrency Broker
During times of global economic downturn, Governments print and circulate money. It triggers inflation and encourages investors to seek long-term, stable investments with their capital. This has often been gold but in recent years, another long-term store of value for many is a Bitcoin investment instead.
Numerous explanations include the failure of the US Federal Reserve. The US dollar has lost 5% of its value and according to analysts at Goldman, the currency is expected to lose up to another 20% in the coming years. Bitcoin investing is also considered by many shareholders as a hedge against deflationary scenarios.
Traditional Market Deflation and Inflation Vs. Cryptocurrency
Crypto investors must always acknowledge the macro-level factors that drive our economy. Inflation is just one of these and it is important to have a grasp of its meaning to understand its effects on the digital asset market.
Inflation is regularly the outcome of an upsurge in money supply. Deflation is the opposite, where prices fall as currency grows in value dependent on new goods, services and innovation.
The Virus Pandemic
The pandemic has resulted in immensely inflationary fiat policy and explosive growth of money supply while costs in key sectors such as food and services continue to climb due to supply difficulties caused by lockdowns. Some see this as the obvious cause for the gold market thriving and for institutional investors.
Digital Assets and Deflation
Most claim that the limited supply of some forms of cryptocurrency is what can act as a hedge against inflation. The Bitcoin protocol is built so that there should be fewer coins in circulation than the demand for them. In a time of lessened confidence in governments, the fact that cryptocurrency trading allows participants to reduce their contact has also encouraged more people to buy Bitcoin.