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How Can Cryptocurrency Guard Against Inflation?



How Can Cryptocurrency Guard Against Inflation?
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Bitcoin and other cryptocurrencies have historically been regarded as inflation hedges. The limited supply of BTC, as well as its decentralized character, are thought to contribute to the rising value of easily available BTC and those still to be mined over time.

Today’s falling cryptocurrency prices and high inflation rates may have some wondering whether BTC can live up to the lofty expectations of financial inclusion and inflation hedging. It’s important to distinguish between “owning” and “using” Bitcoin.

Is Bitcoin viewed as a means of payment, potentially serving the needs of a real economy, or as an investment vehicle and a safe haven against inflation? Depending on the answer, one can determine whether cryptocurrencies can be used as hedges.

The alternatives are also important. Some people may want to invest only in well-backed stablecoins. And whether cryptocurrencies are viable alternatives to (failed) monetary policy is dependent on whether they are considered true alternatives to (failing) monetary policy.

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A BTC maximalist may claim that allowing for a non-fixed money supply after 1971, and especially after 2008, has proven to be incompatible with the needs of a real economy. Inflationary pressures around the world may increase interest in and demand for cryptocurrencies.

The advantages of cryptocurrencies over fiat and their usability are particularly important in nations that have seen their currencies devalue by at least 50% relative to the US dollar (over the last ten years). Consider Argentina, Surinam, Turkey, Lebanon, and Venezuela. Comparing residents of those nations to those who had inflation of less than 50% during the same period, people in those nations were more than five times more likely to say they intend to use cryptocurrency.

See Also: How Investors Combat Inflation with Dollar Cost Averaging

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