Does Bitcoin Work as a Hedge Against Inflation?

Bitcoin is rapidly rising and investors analyze the continual potential rise in the crypto asset amidst whatever the world economy is facing, either it is inflation or deflation.

A highlight stating how Bitcoin has already gone beyond the $50,000 target thrice this year. Inflation concerns led Bitcoin and other Crypto. Because of the rise in Bitcoin, many companies and investors would be returning to the Bitcoin world.

Bitcoin is gradually taking the place of gold in the world of inflation. This is evident in the market rise in investors buying crypto and forsaking gold. This is because analysis has explained how bitcoin is the best to hedge against inflation than gold.

An investment banking firm stated how bitcoin is gradually becoming a good hedge against inflation than gold itself. Over the years, investors of Bitcoin have analyzed how Bitcoin would grow to become the new store of value over other assets, because of its continuous potential increase in price. And since it provides quick returns and increases more, promising a better valuation. who wouldn’t want to own a bitcoin, even though it’s not always a positive trend, but still has the potential to increase.

As said earlier, how bitcoin has gone beyond its target, which portrays the increase in the number of investors buying more Bitcoin, even if it might fluctuate in some period. But experts have analyzed that purchase of bitcoin might pay off in the long term.

It’s been figured that most institutional investors are abandoning gold, and going back to Bitcoin since it’s a better hedge than gold. For experts who have made various analyses, this comes as no surprise, as bitcoin showed a promising gain for investors. Following the performance of Bitcoin this year, it’s no surprise that it always stands to give gain to its owners and withstand inflation.

Hedging Against Inflation

The professional analysis would describe how inflation is arguably healthy for a certain economy and positive for growing an economy. But it will be preferable to not hold on to cash during inflation, or even put your savings in the bank as cash, because it tends to lose its purchasing power, thereby reducing the value of your cash.

To hedge against inflation, it’s best to turn your savings or income into the store of values like investing in stocks and most importantly cryptocurrency like bitcoin. Many market participants do this with their cash, to avoid a reduction in the value of their net worth. Other assets you can also invest in are precious metals, bonds, shares, and other related assets.

For an asset to be a better hedge against inflation, it must first be a good store of value, which means, it must be able to maintain its purchasing power over time, without any decline in value, remaining stable or increasing in its valuation amidst inflation saga.

Bitcoin as a hedge against inflation is known as a hard asset, because of its ability to increase and hold its value over time. There are certain vital properties that a hard asset must possess, there are;

Durable – the asset must continue to have demand for it over time. It must not lose its value.

Scarce- a hard asset must be scarce, limited in supply that allows for an increase in demand, thereby pushing up prices.

Accessible – the general market and its participants must be able to accept the asset as a store of value.

Bitcoin As An Hedge Against Inflation

Bitcoin as a hedge against inflation is an investment, also known as an asset that increases or maintains its value over time, shielding itself against the negative fluctuations in price. This is quite beneficial to investors, who use bitcoin as a store of value because inflation thereby won’t be of any effect on its value.

Inflation is defined as the fall in the purchasing power of a currency over a period, which means that, what is purchased for a unit of currency today, the same unit of currency can’t purchase the same stock, because of an increase in the price of the stock.

Inflation is mainly viewed as a measure of prices rising for both goods and services in an economy. This is evident in numerous country’s economy, whereby inflation has shifted the value of the country’s currency. In some cases inflation has crippled the economies of countries, not being able to recover from the persistent rise in prices.

Inflation is beginning to increase and professionals say the price rises are just starting, and there is to be a more persistent rise. Before now, Gold and other precious metals were considered to be the best way to hedge against inflation, but recently cryptocurrency like Bitcoin has become the store of value best to hedge against high inflation.

Although some school of thought doesn’t accept Bitcoin as a store of value to be the best fit to hedge against inflation. Because of its reduction rate when its price tends to fall. Some week, cryptocurrencies might fall more than 36%, declining their value. So this school of thoughts claims, Bitcoin is not a store of value, but an evaporating value. Though, this might be right to some extent. Bitcoin has shown signs of long-term benefits.

Conclusion

Different Investors deal in cryptocurrency for various reasons. Some set of investors seek immediate profit while others seek to grow their fortune in a fast way. But there are certain people who it as a store of value and agree that bitcoin is better to hedge against inflation than gold and another asset. When inflation occurs, and currencies decline in value, these investors purchase assets such as bitcoin, to preserve their purchasing power and wealth. This technique is done to ensure the safety of their net worth amidst inflation in the economy, instead of the inflation reducing their savings drastically.

The growth Bitcoin has accumulated over the years has made experts see it as a good hedge against inflation. So instead of people purchasing gold and other precious metals, they are rather buying Bitcoin to preserve their wealth.

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