People have extensively talked and written about Bitcoin and inflation. Many experts say Bitcoin has unique qualities that can withstand inflation better than traditional assets. While Bitcoin has high volatility, its past performance has shown exceptional resistance to inflationary risks. Bitcoin experiences rapid and substantial price swings, but it usually rebounds quickly, setting new records. That has got many people wondering how Bitcoin relates to inflation. Here’s what you should know about Bitcoin and inflation.
Inflation at a Glance
Experts argue central banks’ money printing culture will lead to inflation or a decrease in the value of money over time. Banks can always print money whenever they want for personal gains, impacting excessive money supply in their economies. For example, the US’s rate of creating new money has increased from 5% in the early 2000s to 18% in 2020 annually. That has impacted one of the highest inflation rates since the 1980s.
Inflation has numerous impacts on the economy. It has surged the prices of various assets and commodities, including housing and cars, and kept inventory levels at all-time lows. The prices of chicken, beef, and pork have also increased, making life very expensive for many people. Inflation mainly occurs because of a central authority that regulates the money supply, disrupting the prices of commodities and economies.
Bitcoin as a Better Inflation Hedge
Many investors have wondered what would happen if they had a better way to determine the future money supply with precision and confidence. They would be able to make better projections and plans for the future, avoiding the risks of inflation. And that is where Bitcoin comes in.
Bitcoin is an independent asset class in the larger crypto market. Miners have already minted almost 90% of all the Bitcoin. Experts believe miners will have reached the maximum Bitcoin supply by 2140. Unlike fiat currencies that central banks can print at will, Bitcoin’s supply strictly runs on math, as set out in the Bitcoin code. That allows for better confidence in its future and long-term implications.
Politicians, government policies, and institutions can influence the money supply and transactions on centralized exchanges. However, Bitcoin works on a decentralized network without any central entity. That means even institutional investors with extensive Bitcoin holdings cannot influence it.
Bitcoin’s current inflation is 1.77%, and experts believe it will drop over time. That gives investors the confidence that if they buy Bitcoin, they will be able to store wealth into the future with certainty since there is no way for anyone to create new coins or devaluate the tokens. The network has built an efficient and transparent incentive structure for miners and users. It ensures trust in a fixed-rule system that users can upgrade only by consensus.
Bitcoin’s Purchasing Power
Money’s primary goal is to facilitate economic output that users can save for future utility. Money must have a demand to attract value. Recent statistics show almost all crypto investors today own some Bitcoin. Its market is growing, with several mainstream institutions and investors buying and converting a significant part of their assets into Bitcoin.
Bitcoin has become a game-changer due to its transparent monetary system. Market analysts predict those who move their wealth to Bitcoin will have a lot to gain in the future when its prices skyrocket. Bitcoin allows for goal matching, enabling investors to easily match its future sales with income streams against expected future expenditure.
Overall, Bitcoin is a unique asset that can help investors mitigate inflationary risks and accomplish their financial goals. However, please do a little research to understand the crypto market and how to reduce risk exposure when investing in Bitcoin.