Bitcoin: Why is it The Best Bet Against Inflation?

Inflation has begun to rise again. For the past few months, India’s annual inflation rate has been climbing, as has been the case in many other nations. As a result, more individuals are looking for measures to safeguard their assets against inflation, and cryptocurrencies like bitcoin appear to be a great hedge. It is argued that money printing by the central bank would lead to inflation or the devaluation of money over time. In comparison, Bitcoin has a set limit of 21 million coins that may ever be minted. Because of its limited supply, bitcoin is resistant to inflation. Let’s take a closer look. Inflation – A Basic Overview Simply put, inflation is the rising cost of goods and services. In other words, rising prices reduce people’s purchasing power. Therefore, formerly lower-priced goods and services now demand more fiat cash to be acquired. A chocolate bar that cost $10 two years ago now $20. The culprit is inflation. Inflation can be caused by a variety of macroeconomic and microeconomic variables. Most observers feel that persistent inflation occurs when the amount of fiat money in circulation increases in a way that does not correlate to the country’s economic progress. To keep inflation under control, most countries have a national central bank. It regulates the supply of fiat money in circulation and establishes credit limits for the benefit of the national economy. However, these measures have failed time and again, and as such, necessitated the creation of an inflation hedge. In a perfect world, an inflation hedge should rise in value as fiat currency depreciates. Gold and real estate have traditionally been popular assets for inflation protection. During periods of inflation, these assets frequently retained or even increased in value. Investing in these sorts of assets helps protect your funds against the devaluation caused by inflation. However, investors’ interest in gold has been steadily declining. It’s still a terrific long-term investment, but the returns aren’t as great as they previously were. Furthermore, moving and storing it is a bother. This is where Bitcoin steps in. How Does Bitcoin Combat Inflation? Bitcoin is a superior inflation hedge than gold or other traditional assets for three major reasons, which are as follows. 1. Bitcoin isn’t tied to any currency or economy. Bitcoin isn’t tied to a currency or economic system, like gold. Neither corporations nor stakeholders control it. It’s a global asset class reflecting global demand. Rising inflation forces investors to take on greater risk to offset falling asset prices. A 3% dividend yield, for example, might be utilized to supplement retirement income. But if the inflation rate is 6%, it’s not good enough. Long-term S&P 500 returns are between 7% and 8% per year, marginally above the existing inflation rate. Bitcoin may be a better investment than equities since it bypasses many of the political and economic risks. Bitcoin and other cryptocurrencies are good for diversifying away from domestic sources. 2. Bitcoin is limited. An algorithm caps Bitcoins (BTC) to 21 million. 19 million BTC exist in 2022. Within 12 years of Bitcoin’s existence, 90% of the cryptocurrency’s mineable supply is in circulation. Pre-set Bitcoin circulation limits ensure there is no surplus supply, which helps control inflation. In addition, the mining reward also halves every four years. Bitcoin’s yearly production rate is roughly half of gold’s and is likely to drop, making it more precious and difficult to obtain. 3. Bitcoin makes value preservation easy. Bitcoin is durable, interchangeable, safe, and limited, like gold. Bitcoin, unlike gold, can be transported, transferred, and decentralized. Most of the world’s gold is held by sovereign governments, including the US, China, Germany, and others. Bitcoin can be stored and secured more easily than gold. Those who feel gold is a precious commodity may say the two are identical. However, Bitcoin’s underlying blockchain technology has real-world utility. As a currency, Bitcoin has limited practical utility in industrialized countries with stale fiat currencies. However, in economies prone to hyperinflation and political turmoil, Bitcoin is a superior means of exchange. Closing Note Investing in Bitcoin as an inflation hedge is a smart move, but you should monitor regulatory developments closely. The above factors further reinstate that it’s a better bet to invest in Bitcoin than gold, real estate, or other traditional assets. As a result of its limited supply and decentralization, Bitcoin has a unique position as an asset that can withstand inflation.

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