The Liaising Between Bitcoin And Inflation

The Liaising between Bitcoin and Inflation

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by Alex Noah — 4 months ago in Blockchain Technology 4 min. read
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Some speculate that bitcoin has been used by some investors to shield their investments from hyperinflation. What does this actually mean?

Inflation has reached unprecedented heights and people are attracted to anything they can find to protect themselves.

Despite evidence to the contrary, bitcoin assets are believed to be inflation-resistant. But, it quickly becomes clear that every cryptocurrency is unique and some are inflationary.

It is believed that fiat money will lose value if central banks print money. This is why Bitcoin (BTC), has been so popularly promoted as an inflation hedge.

Investors in cryptocurrency are speculating about a variety of factors such as inflation which has caused losses in their Bitcoin wallet (exodus.com/bitcoinwallet). There is a limit of 21 million Bitcoin coins. Bitcoin is able to have an upper limit that is lower than inflation. But does Bitcoin impact inflation?

Inflation: What is It?

Inflation is characterized by a rise in consumer goods prices and a gradual fall in currency value. Due to the limited supply of cryptocurrencies such as Bitcoin, inflation rates are often low.

Inflation is the trend toward rising prices for goods and services in an economy. It also coincides with the economy losing purchasing power. This means that an increasing amount of goods or services will require an increasing number of currency units to purchase.

Inflation affects every good or service, including utilities, cars, and food. Inflation essentially devalues the currency and has an effect on corporations as well as individual customers.

In other words, inflation reduces a consumer’s purchasing power, depreciates savings, and delays retirement. The global central banks monitor inflation to ensure they are able to react accordingly.

The target inflation rate has been set by the US Federal Reserve at 2%. Should inflation rise above the desired level and should the system change its monetary policy to combat it?

Is There a Problem With Inflation?

Inflation has been more frequent than ever in recent years. The international response to the epidemic is driving a steady rise in inflation rates worldwide.

Yahoo claims that inflation will not decline, despite the possibility of high inflation rates eventually falling.

  • Inequal supply and demand in the labor market – Rising real estate prices
  • The expected increase in entry prices

Bitcoin Price Rises

Although the Bitcoin market’s economics are complex, some cryptocurrencies can be designed to resist inflation or have low inflation rates. Bitcoin’s effectiveness as an inflation hedge has been questioned in recent economic changes.

How Important is Bitcoin in The Price Rise?

Institutional investors have helped the cryptocurrency match market trends. This means that Bitcoin will likely fall with the market.

Inflationary news will likely prompt the Federal Reserve to implement a dual mandate. The Federal Reserve will likely increase policy interest rates, while also tightening the financial system. The result will be a decrease in the value of assets, including Bitcoin and other cryptocurrencies.

Is Bitcoin Immune from Inflation?

The question is: Can Bitcoin be used as an inflation hedge? While gold is traditionally considered the best inflation hedge in history, cryptocurrencies such as Bitcoin can offer excellent options.

Bitcoin can be thought of as more of an “inflation-resistant” asset as opposed to “inflation-proof,” which suggests complete impenetrability against any outside changes. Bitcoin, being the most popular cryptocurrency, LiaisinLiaising between g between considered an excellent inflation hedge. Bitcoin may be considered a better hedge than gold.

Bitcoin is more volatile than gold but has a superior long-term growth rate. How is this possible?

Limited Availability of Bitcoin

Because of its fixed supply, Bitcoin is an excellent inflation hedge. When the supply of an asset’s currency is limited and fixed, inflation risk is eliminated.

Bitcoin does not have a Specific Currency or Economy.

Bitcoin isn’t part of any particular economy, currency, or business. It is an asset class that can reflect demand from all over the globe. Bitcoin is an alternative to shares because it doesn’t have to deal with the many economic and political risks associated with stock markets.

It is Easy to Send Bitcoin Currency

Bitcoin is durable, interoperable, limited, and secure. It’s almost like gold. Bitcoin has a distinct advantage over gold in that it can be transferred, and is portable and decentralized. Because of its decentralized structure bitcoin can be stored by anyone, unlike gold, which is controlled by sovereign states.

Why Inflation is so Important for Cryptocurrency?

Increased investment in digital currencies could be due to high rates of fiat currency inflation. This reduces consumers’ fears that their money will eventually lose value. Investors looking to diversify their portfolios can look into cryptocurrencies such as Bitcoin (BTC), and Ether (ETH), which offer a great option.

Benefits From a Fixed Supply Bitcoin

An asset that resists inflation is protected by scarcity. Bitcoin is sometimes called “digital gold” due to its limited supply. This keeps it scarce and ensures that its value will remain stable over time. Satoshi Nakamoto, the inventor of Bitcoin, wanted each unit’s value to rise over time. This was possible due to the finite supply and gradual emergence of new Bitcoin.

There can be no new Bitcoin after the limit is reached. Transactions will continue as normal, miners will still get paid but through processing fees. You can also mine tokens or currencies. For example, you can mine helium.

What will happen to Bitcoin in a Downturn?

The “Great Recession” 2007-2008, also known as the financial crisis. Satoshi Nakamoto invented Bitcoin to provide money to the people that were not tied to any third party and had a central authority to respond to bank failures. It was the first cryptocurrency to not be tied to any government or organization.

A recession can have negative economic consequences that spread to countries with strong economic relations. Due to its inherent diversification, Bitcoin can be a recession-resistant asset. Bitcoin isn’t tied to one country’s gain or loss, unlike the U.S. Dollar, which is subject to all the benefits and disadvantages of its economy (GDP, currency demand, and export prices).

Bitcoin’s value is independent of the economic state. This is due to the asset’s security and scarcity. It can also be transported anywhere. Its main purpose is to store value and bitcoin will perform better in a recession than other cryptocurrencies like Ethereum.

How Bitcoin can Eventually Benefit Customers

It is unlikely that Bitcoin will replace centralized currencies. However, Bitcoin’s launch in 2009 has changed the financial landscape. Its technology has allowed for groundbreaking developments in Decentralized Finance (Defi), and it benefits unbanked customers living in remote, low-income regions.

Blockchain technology has opened the door to many new developments, but its primary goal is to serve consumers reliably. Blockchain technology is a secure, decentralized, and anonymous way for consumers to trade money. Bitcoin, along with other crypto assets offers monetary options that are immune from inflation and economic downturn.

Alex Noah

Alex is senior editor of The Next Tech. He studied International Communication Management at the Hague University of Applied Sciences.

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