Beyond Inflation: Is Bitcoin the Solution?

Let’s look at how the crypto community argues that Bitcoin is a protection against inflation.

In a world where economic uncertainties seem to have become the new normal, people turn to Bitcoin to protect themselves. As traditional fiat currencies grapple with inflationary pressures, the fixed supply of Bitcoin has positioned it as a potential hedge against devaluation and an alternative store of value.

The gist of the story: Central banks have the power to control monetary policy, including printing additional currency, which often leads to inflation because governments print too much money. However, Bitcoin’s inherently fixed supply, capped at 21 million coins, defies this trend. This scarcity is a lifeline for investors seeking protection against the tiresome and increasing levels of inflation. Unlike fiat currencies, Bitcoin cannot be devalued at the whims of monetary authorities.

When traditional fiat currencies lose their value, investors often seek refuge in assets with intrinsic worth. Here’s a simple example. Ice cream lovers would be wise to invest in Bitcoin.

30 dollars in 2011 would buy you about 15 ice creams. In 2023 you would only get about 10 ice creams for 30 dollars. 1 Bitcoin in 2011 would get you the same amount of ice creams. But in 2023, 1 Bitcoin would give you about 4 trucks filled with ice creams.…

Let’s be serious. Nations look to Bitcoin for safety when inflation gets problematic. History is full of instances where Bitcoin’s value increased in countries with high inflation:

– In Venezuela 2019, where hyperinflation has plagued the national currency, Bitcoin surged in popularity as a means of preserving wealth.

– Iran’s high inflation rates prompted some to turn to Bitcoin, even leading to government-sanctioned Bitcoin mining in 2019.

– Argentina’s peso devaluation crisis in 2018 drove a surge in Bitcoin trading volume, offering a haven during uncertain times.

– Zimbabwe’s hyperinflation crisis in 2017 saw a similar trend, with Bitcoin emerging as a safe haven from depreciating currency.

It’s interesting that Bitcoin’s value hasn’t displayed similar trends during periods of low fiat currency inflation. It’s obvious that we turn to alternatives when things are not working. People turn to Bitcoin because the inflation rate of Bitcoin is steady, as it is programmed to decline by 50% every four years. It’s called the Bitcoin halving and no one can stop it. Not even governments.

Insights:

The argument that Bitcoin is volatile is correct if you look at the price on a shorter timeframe. But on a longer timeframe Bitcoins price is clearly pointing up to the right. As more money is coming into Bitcoin, from Bitcoin ETFs and institutional adoption, volatility will decrease. And here’s the kicker! Protection against inflation will persist due to the Bitcoin halving every 4 years. Basically, Bitcoin is programmed to protect us. Fiat money on the other hand, largely involves managing debt that continuously increases until we are forced to reset problematic national currencies and start over. I would say that the crypto community’s arguments for Bitcoin as a hedge against inflation remains strong to this day.

Disclaimer: This is not investment advice.