Inflation vs. Crypto

World food prices are edging to an all-time high! And Inflation has reached a 40-year high in the U.S. as of March 2022 – a 7.9% annual gain.  

Simply put, if your savings did not gain 7.9%, their value has decreased. “We all know inflation is bad, but the numbers can often be misrepresented and don’t appear as devastatingly high on top of that.

In this article, we’ll take a look at whether or not Crypto is an effective hedge against inflation.

Disclaimer: Nothing in this article is financial advice, and is intended purely for education and entertainment purposes – Always conduct your own further research.”

Is Investing in Gold a Good Idea?

Gold is a precious metal that has been used for centuries as currency, jewelry, and a store of value. It’s also known to many investors around the world as a safe haven in times when inflation gets too high – but what about one year ago? If you had bought gold a year ago, you would be down -0.97% as of February 10th, 2022. 

Investing in Gold may not always make sense when trying to preserve wealth or keep up with stubborn rates of inflation.

Crypto offers a way out of the horrors that is inflation. Not only does it offer us an opportunity to rise above inflation, but make some profit too. It gives people hope for their future and stability when countries face a financial crisis.

There’s more than meets the eye when you take up crypto as an investment – most projects fail regardless if they’re top 20 coins or not because let’s face facts: no one knows what will happen next (we’re hopeful about Ethereum’s upcoming upgrade).

New coins come out on a daily basis, some fail to make any impact whatsoever, others linger in the limelight for a couple of years, and very few are considered ‘evergreen’ – like Bitcoin.

It’s hard enough to understand what these new projects mean without adding yet another term into our already extensive list! So there are obvious risks associated with cryptocurrencies.

Cryptocurrency can be used to combat inflation in countries with high rates of inflation

Some countries are suffering from hyperinflation…a situation where prices increase by 5-10% each day. This leads to a rapid and excessive rise in the economy’s goods costs that many have difficulty managing without suffering significant financial losses. Wages tend to stagnate, increase slightly, or decline even further due to increased costs pressing upon them daily. This was certainly true of Turkey (15.4% ), Sudan (41.8%), Argentina (51.2%), Lebanon (201.0%), Venezuela (over 2000%), and so many others.

That number may be way worse. To illustrate how inflation numbers can easily be ‘misrepresented’, here’s an example: You used to buy a 680g box of cereal a year ago for $4; today it’s $4.25 – for a 500g! The price has increased slightly but now there are fewer servings in each package which means you’re getting substantially less value out of your hard-earned.

Something to address

When the average person suffers from hyperinflation, they lose their life savings because of a fiat currency’s declining value. It doesn’t matter that these problems are caused primarily by political and economic policies; all we know for sure is that people will continue to bear consequences whether or not there’s any fault on behalf of them individually. That’s why people can turn to cryptocurrency as an escape route. 

Despite the occasional 30-70% crashes, investing in Bitcoin has turned out to be profitable in the long haul. In 2017’s bull run, BTC peaked at around $19000 before crashing down to $3200 – but if you take into account its current price of $42700 – that is already a 100%+ gain from the peak! 

And never mind the fact that BTC had a near-exponential growth to $67,000 on the 8th of November 2021, which is almost a 350% increase from 2017’s peak! So even the extremely unlucky ones who bought the very top are sitting on monumental gains but only if they held onto their coins.

There have been around 4200 days where you could easily buy bitcoin and it was profitable 3934 of those days or 93.7% of the time. Even the unlucky people who bought the top in 2017, have been in profit for over a year straight – and that includes a 60% drop

In short, in the long run, Crypto can be a way to avoid having your savings eaten away by inflation, protect your purchasing power, and make some profit while you’re at it.

Benefits of cryptocurrencies

Did you know that Bitcoin was the best performing asset of the previous decade?

Bitcoin has been one of the most profitable investments in history. Its cumulative gains are well over 20 million %, which is supreme above anything ever recorded in our lifetime.

 Bitcoin returned 230% on an annualized scale, which is 10x higher than the Nasdaq 100 – the second best-performing asset class as seen in this chart below:

Furthermore, in 2021, Bitcoin returns reached over 70%,? Meaning that it outperformed Gold and the Stock Market… for the third year in a row

Of course, past historical data is not indicative of future performance. As of February 10th, 2022, Bitcoin sits at an $839 billion marketcap. For comparison, Gold is $11.6 trillion. So Bitcoin still has a 10x to achieve in order to compete with Gold in terms of Market Cap. This means there are still plenty of gains to be made. But as the common crypto saying goes – DYOR (do your own research!) as in you’re responsible for the decisions you make based on your own research!

Advantages of Crypto

So other than the juicy gains, crypto also offers a wide range of benefits. Here are 7 advantages:

1. Digitally decentralized, transparent, and secure.
2. Transactions are fast and easy – no more waiting for days for a bank transfer to go through
3. Cryptocurrencies can be used to invest in other blockchain-based projects.
4. Not subject to government or financial institution control.
5. The value of cryptocurrencies is determined by supply and demand on open exchanges.
6. Global and not tied to one country or government.
7. Transactions are can be performed from anywhere in the world.

The value of cryptocurrencies is constantly changing, so there’s always an opportunity to make a profit

So is Crypto an effective hedge against inflation?

Well, since crypto is digital, it’s extremely liquid. You can get in and out rapidly. And it means you don’t have to worry about storing them in a physical place. They live in the blockchain. On the same side, Crypto is not prone to being confiscated by tyrannical regimes. That’s an edge Crypto has over Gold, which is physical and requires that you store it in a safe place or in a vault (which can always be cracked).

With Crypto, you also get some very high yield returns (up to 20%) even on stablecoins like USDC and Tether. In DeFi (Decentralized Finance), you can access even more enormous returns with yield farming, but of course, they carry extremely high risk – so again, DYOR 😉

Crypto yield returns outclass the returns you get in a regular bank. And because they’re not subject to central banks’ policies, they are dependent on the supply and demand of the market.

The most important of these benefits is that Crypto has global potential and doesn’t depend on any government or country. For example, Bitcoin represents the first payment method ever since Gold to be considered truly ‘global’ like how Gold used to back in ancient times! Hence why you hear people say “Bitcoin is digital gold.”.

“Bitcoin is a great way to protect wealth over the long run…a store of wealth like gold.” 

– Billionaire Hedge Fund Manager, Paul Tudor Jones

Crypto is risky

Mark Cuban said Bitcoin is not, and will never be, a hedge against inflation. He believes that it’s just a fancy marketing slogan. Nevertheless, his crypto portfolio consisted of 60% bitcoin, 30% ether, and 10% other altcoins, as of April 2021. The owner of the Dallas Mavericks also stated that 80% of his investments that aren’t on Shark Tank are crypto-related.

Since its inception in 2009, Bitcoin has made a name for itself. But Bitcoin and other crypto are not immune to risk. While some consider Bitcoin to be the least risky for passing the test of time, there’s still some risk involved.

Risks associated with Crypto

Risks associated with Crypto

People invest in digital currencies more than just to counter inflation but in hopes of making a quick profit. While there is certainly money to be made, there are also risks associated with cryptocurrency investment. Here are some of those risks:

1. Can be stolen by hackers, it’s important to keep your wallet and login information safe
2. Often associated with illegal activities
3. Value can fluctuate wildly, so you could lose a lot of money if you’re not careful
4. Not widely accepted yet, so it may be difficult to find places to spend them
5. Not regulated by governments or banks (at least right now and in most countries), so there is no guarantee that your investment will be safe

Protecting yourself from Inflation

“It’s hard to find a more global currency than Bitcoin.”

– Anonymous

The rise of Bitcoin and other cryptocurrencies is making headlines across the globe, but it’s not just a fad or hype. Cryptocurrency can help people combat high rates of inflation in countries like Venezuela with currencies that are rapidly devaluing. The prices of goods and services have been steadily increasing. As a result, people’s purchasing power has been gradually eroding.

While there are occasional 30% – 70% drops in BTC prices, riding out the wave has turned out to be a worthwhile decision. That’s why Crypto could be a feasible way to protect yourself from inflation.

Final Thoughts

While there are various ways to protect yourself from inflation, using cryptocurrencies may be a feasible option. Cryptocurrencies may be a good way to guard your hard-earned money against the effects of inflation. But always DYOR! 

Crypto also has benefits for people looking for investment opportunities outside traditional assets like stocks and commodities, as well as those who want to avoid banks completely by investing directly into cryptocurrency exchanges. 

However there are risks associated with this form of currency- hacking being one potential risk that could lead you to lose all your money if cybercriminals steal your digital wallet password or private keys. 

So, is Crypto an effective hedge against inflation? That very much depends on your risk tolerance. With the gains, benefits and potential risks laid out for you to consider – only YOU can decide what’s best!