Why is Bitcoin Considered a Hedge against Inflation?

Wherever you go in the world, people are talking about the rise in prices of fuel, food, electricity – and just about everything else. The pandemic and the Russian invasion of Ukraine have brought severe consequences to the world economy. 

As a result, the Consumer Price Index, the global measure of inflation has risen at a rate that we haven’t seen in decades. In the last 12 months, it’s increased by 8%, a percentage that is still expected to rise.

This makes investors hesitant just about everything. All around the globe, people are trying to figure out the safest place to keep their money. 

Out of all the options, crypto remains the top choice with Bitcoin in the front seat. The world’s oldest and most valuable cryptocurrency has served as an inflation hedge for a long time, keeping its high value during the most difficult of times.

However, Bitcoin hasn’t been the most stable coin in the last couple of years. It first reached the highest price in the history of digital currencies. Since it hit its grand peak in November of 2021, the top currency has fallen in value. 

After its 3-month fall, the price of BTC is slowly going back up again.

This surely opens up many debates. While some see this as a risky investment, others consider it to be a great hedge against inflation. As a matter of fact, BTC’s value is forecasted to grow to 100 thousand dollars by the end of 2022. 

So, it’s no wonder that you are thinking of investing in this currency. In this article, you’ll learn how Bitcoin can protect against inflation. 

Understanding inflation: What does a hedge against inflation mean?

Simply put, inflation is the rise of prices of goods and services. When the inflation percentage grows, the purchasing power of the people diminishes. Everything costs people a bigger quantity of fiat currency.

Sounds very familiar, doesn’t it?

Today, buying anything will cost you more than it used to just a few years back, and even a month ago. This is all due to inflation. 

In the world of economy, the reasons for inflation are numerous. The more general perception is that inflation happens when a bigger supply of fiat currency is in circulation and it doesn’t match the economic growth of the country in question.

In most countries, the central bank is the one responsible to control this. They keep track of the fiat currency supply in circulation, maintain credit limits, and take care of the national economy.

However, in unexpected times like the pandemic or a war, the global economy market experiences an increase in inflation.

At such moments, the masses are looking for a hedge against inflation i.e. a thing that keeps its value or increases it even as the purchasing power of the fiat currency goes down. Historically, strong currencies like Bitcoin are the strongest hedges against inflation. They’ve survived a lot – and even increased in value during such periods.

If you invest in a hedge against inflation, you are protecting your savings and possibly even increasing them. But the question is – what’s the best hedge these days?

Is it real estate?

Is it gold?

Or maybe it is Bitcoin still?

Why should you buy Bitcoin – and where?

Just imagine this.

Let’s say that BTC is a good hedge to use. You have some savings and want to protect them during the inflation, as well as enjoy great terms. For starters, you find a safe, quality place to buy your coins. Today, you can buy Bitcoin on MoonPay as the safest option out there. 

Thankfully, you can purchase a small portion to a few Bitcoins depending on your budget. You can store them, trade them and sell them on the same platform.

When you’ve bought some coins that you want to keep during the inflation period, you’ll probably store them in a BTC wallet, and watch them rise while the value of fiat currencies is getting smaller.

When inflation ends and the fiat currency gets back to normal, your savings will be more valuable than before.

Cryptocurrency is the gold of modern times. Before digital currencies came on the market, investors bought gold as a long-term hedge against inflation. Today, there’s been a decline in the interest in gold because it doesn’t offer the same returns as it did before. Not to mention, crypto is much simpler to store and use, while gold needs to be kept and transported physically.

Why not real estate, you might ask?

The real estate suffered a lot during the 2008 market crash. Now it has a high entry cost, so it’s not an investment option for people with limited savings. Cryptocurrency, on the other hand, comes at diverse rates. You can now buy a small portion of BTC based on what you’ve saved.

Let’s delve a bit deeper into this.

Why Bitcoin is a hedge against inflation

Bitcoin might be the first cryptocurrency, but still, it hasn’t been around for a long time. The origins of BTC go back to 2008, making this one of the newer hedges against inflation in the world. 

Even so, a few years after it appeared, people started referring to it as “digital gold”. There was a point when it became so popular that the entire world was talking about it. 

Ever since BTC started growing and the number of cryptocurrencies increased, this coin is seen as a strong hedge against inflation. Yes, it has seen its ups and downs, but investors don’t seem to give up on it. 

Here are the reasons why.

Limited supply

The primary reason why this is a case is that there’s a limited supply of BTC coins. Satoshi Nakamoto, the creator of the ‘digital gold’ embedded a hard cap into its source code when creating it, so the currency is limited to 21 million only.

At this point, there are around 19 million coins that have been mined, which leaves 2 million left to generate. No one has the power to change the code of BTC and increase the supply because this would result in a new blockchain. 

Since there’s no excess supply, the coin is soon to become scarce, which will increase the demand and with it, the value of Bitcoin. 

As you can imagine, this sense of urgency prompts many to invest in BTC, making this a top hedge against inflation even today.

Easily portable

Gold is not easily portable. You can’t transfer it from one part of the world to another without inspections, and fees, and it definitely takes a long time to do this. You have to store it in physical locations and protect it against theft.

Real estate is not portable at all. Fixed real estate cannot be transferred at all, not to mention in a matter of seconds.

Well, Bitcoin can. Not only can it be transferred from any device with an Internet connection, but this can be done in a matter of seconds. You can store it safely in wallets without taking up any physical space. 

This makes it the most portable hedge against inflation, which is another top reason to invest in it. 

Tremendous price growth

When Bitcoin started selling in 2009, it cost 1 cent per unit. Fast forward to today, one BTC is worth over $19.000.

The all-time high of the coin was $67.567, making this the most valuable digital currency of all time. 

Widely accepted and appreciated

Theoretically, BTC is a great hedge against inflation. It’s a scarce asset, a fungible one (meaning that you can exchange it without loss in value), as well as widely accepted and appreciated. There’s hardly a person in the world today that hasn’t heard of it. 

As a matter of fact, BTC is so popular that physical crypto offices work with it around the globe. You can buy things in online stores with BTC, gamble at online casinos, and even get stocks. 

Such a whale in the finance world is not so easy to disappear. Some of the biggest names and companies in the world have invested in it, keeping their coins intact instead of panicking and selling them. 

Should you invest in it?

The price of Bitcoin is surely experiencing volatility. It was tremendous in 2017, but it crashed in 2018. Then it grew in 2021 and plummeted a few months after. 

If we are driven by its history, we can expect it to grow again in a few months or years. The price of the asset is ever-changing, but the benefits remain regardless.

As TheBitcoinManual says: time horizon matters. The five-year return of 1,000% during a period when the CPI grew only 18.5% tells us that this remains the world’s top currency, and it is indeed a good inflation hedge. 

The great thing about this is that you can invest in a small portion of BTC if your budget doesn’t allow you to invest big – or if you aren’t certain of this hedge. Bitcoin’s performance over time speaks for itself and skipping this hedge at a time like this can prove to be a huge mistake in the near future.