Are cryptocurrencies like Bitcoin really a hedge against inflation?
Are cryptocurrencies like Bitcoin really a hedge against inflation
By Staff
Despite arguments to the contrary, Bitcoin is widely regarded as an inflation-resistant asset, and proponents frequently tout it as an asset class uncorrelated with real-world assets. However, things rapidly grow more difficult when you understand that each cryptocurrency is distinct and some are designed to be inflationary.
To some extent, Bitcoin’s fixed supply has given many enthusiasts hope in comparing it to “digital gold” – in reference to the golden metal or another popular inflation-resistant asset.
These stores of value assets withstand the test of time because they are uncorrelated with other assets and are resistant to market interference.
According to the theory, central bank money production will lead to inflation or a decline in the value of money over time. In comparison, Bitcoin has a set limit of 21 million coins that can ever be minted. Because of the limited supply, bitcoin is resistant to inflation. People may buy bitcoin as a hedge against future inflation and are not crazy to do so.
So, predictably, investors are betting against inflation, transforming bitcoin into the breakout star of inflation hedging. If you look at the performance of Bitcoin throughout the years, you’ll notice that the rate of return on Bitcoin is far higher than that of other currencies or stocks. Bitcoin has an average yearly return of 230%, and in a country like Nigeria, where the inflation rate is over 20.5%, it just makes more sense to invest in it as an asset because it will combat the inflation rate.
Bitcoin is an excellent tool for financial security. It is a deflationary asset with a limited supply, unlike currencies like the shilling or the dollar, which may be easily created and hence subject to devaluation. Regardless of how much the price of Bitcoin falls, it remains the best-performing asset of the decade, with more returns than any stock or investment.
Edmond is a content writer and a digital marketer. He loves to cover stories on blockchain and cryptocurrency and write in a way that is captivating and understandable.
