You must have heard people say that bitcoin offers a great hedge against a rise in price and inflation. If you want information about whether bitcoin is affected by inflation or not, this article is the best source.
According to the financial policy, the central bank prints money, and more currency printed by the bank can cause inflation. In comparison, bitcoin comes up with a limit of 21 million. Therefore, it means not more than 21 million bitcoins will get created. Therefore, the limited supply feature of bitcoin helps the digital currency resist inflation.
How does bitcoin resist inflation?
The covid-19 pandemic offered an ideal condition to test the theory. After the pandemic, most economies started injecting millions of dollars into the market. Larger economies like the USA printed money to fulfil the needs of their people.
Many economists thought that central banks saw the rise of inflation as a sign of economic recovery after the pandemic.
As per governments, this was a sort of expansionary monetary policy. As per this policy, the central bank will increase the money available to the people. This way, the economy will move along, and it will help prevent the shutdown. Immediately after the pandemic, a crazy amount of money was being printed down. But it also led to the fall in the value of the money. On the other hand, prices of other assets, including bitcoin, are rising. This article will better understand the relation between bitcoin and the inflation hedge.
Does bitcoin offer an inflation hedge?
We all are fearful of economic contractions caused by inflation. Inflation is a condition when the global supply of money increases. But, when you use bitcoin as a currency, it becomes a perfect hedge against inflation. Unlike the fiat currency, bitcoin does not have to get relegated from the central bank. In addition, the best feature regarding bitcoin is that it comes up with a meagre overall supply. Thus, like fiat currency can be printed in significant currency, you can’t print bitcoin in large quantities.
The decentralization process of bitcoin helps in making it a perfect store value. In addition, many bitcoin proponents believe that the worth of a virtual currency increases as the investor runs away from the traditional financial systems. Thus, bitcoin works as a haven for most investors.
Bitcoin acts as a hedge against success.
Bitcoin also offers maximum protection from inflation. In the covid times, we have seen that it has easily withstood the harsh impact of bitcoin-19 with ease. During the pandemic, bitcoin had a trading value of around $5000. In the last 52 weeks, bitcoin had an increase of 235%.
Inflation has also increased over the same time. But, at the same time, bitcoin worked as a hedge against inflation. Within a decade of its arrival, bitcoin was also accepted by many institutional investors. Thus, we can see potential in bitcoin growth. In addition to being a hedge against inflation, bitcoin also works as a strong hedge against different types of social disruption and political instability.
You can easily understand this by using an example. Stable monetary inflation leads to social issues like poverty and lack of trust in the institutions. We all have seen similar issues in the case of countries like Zimbabwe, Argentina, and Venezuela. But, by using a virtual currency like bitcoin, we can easily avoid these social issues. The use of bitcoin offers a good hedge in terms of the economic standpoint. It also offers protection from broken payment issues and limitless control of government and financial institutions.
The globalized nature of bitcoin and supply limitations make it a fantastic currency. The exact nature enables it to offer protection in case of inflation. Since the government can’t control the supply of bitcoin in the economy, it can’t cause inflation. So, if you plan to invest and get protection against rising inflation, bitcoin is a suitable investment mode. At the time of global lockdown, we all witnessed how bitcoin increased value. Thus, we all are aware of its potential of being an inflationary hedge. But, before you plan to invest in bitcoin, try to take additional precautions and have sufficient knowledge about it. You can contact a platform like this trading app to get more details.