The Stablecoin AlternativeĬryptocurrencies often experience sudden price movements, which for many, makes them an unattractive store of value. In comparison, cryptocurrencies have too much short-term volatility to give investors the same confidence they have in gold. Although it no longer backs national currencies, gold has established itself in this realm throughout history. Any asset used as a store of value and a hedge against inflation require a high level of stability and trust. However, after Bitcoin’s drastic 45% drop in May, many investors flocked back to gold, viewing cryptocurrency as an immature sector which hasn’t proven itself as a stable asset class nor a safe haven store of value. For example, despite suffering a massive drop from its recent all-time-high to around $30,000 in July, Bitcoin was still up 2% for the year. The crypto market’s questionable volatilityĬritics argue that the major reason for the increased institutional money in the crypto market is the overall price appreciation of cryptocurrencies over time. While Bitcoin has surged in popularity over the past year, the crypto market’s volatile nature continues to be a polarizing topic. Most importantly, Bitcoin’s supply will never exceed 21 million which makes it an attractive store of value that is resistant to inflation.

Unlike fiat, crypto can’t be manipulated to the same extent by changing interest rates and increased money printing. Hedging against inflationīitcoin is fundamentally a deflationary asset, which is why citizens of countries with unstable fiat currencies are increasingly using it as a store of value to protect against hyperinflation and rising costs of everyday goods and services. Historically, gold has been used as a hedge against inflation, but now crypto has become a more popular alternative over recent years. Since inflation has been a constant threat to the value stored in fiat, people often protect themselves by investing in assets that maintain their value over time. Crypto And Bitcoin’s Role During Inflation For example, citizens of hyperinflationary economies like Argentina, Venezuela and Zimbabwe have to prioritize spending otherwise price levels grow rapidly and cause the money in their savings account to decrease in value. Higher inflation erodes the value of the money you’ve saved and lower inflation slows the economy as a whole. On the other hand, when inflation spins out of control, it leads to hyperinflation, causing the price of goods and services to rapidly increase while wages stagnate, currency purchase power decreases and living costs become more expensive. Overall, a low inflation rate stimulates spending, investment and borrowing-all things essential for healthy economic growth. To famous economist John Maynard Keynes, inflation is not a horrible thing in some situations, and can actually boost the economy and create new jobs during downtimes. But now that economies are reopening and consumer spending is picking up, governments face a difficult task ahead. However, inflation remained stable, hovering around 1.5% despite the pandemic-induced money printing. Just recently, many experts predicted inflation to rise significantly in 2020 as governments worldwide were forced to inject trillions of dollars to help stimulate a stagnating economy caused by the coronavirus pandemic. In other words, inflation is caused by governments printing more money than is needed, and it’s also the reason why your grandparents always talk about how things used to be cheaper.

But what is inflation? Inflation is the process by which the decreasing value of a currency, like the US dollar, leads to an increase in the price of goods and services over time. You’ve most likely heard on the internet that Bitcoin is designed to combat inflation. In this article, you’ll learn the basics of inflation, the role crypto plays during inflation and how you can use USD-backed stablecoins like BUSD as a stable hedge against inflation. Inflation is defined as the process by which the decreasing value of a currency, like the US dollar, leads to an increase in the price of goods and services over time. In this article, you’ll learn the basics of inflation, the role crypto plays during inflation and how you can use USD-backed stablecoins like BUSD as a hedge.

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