Analyst tells why Bitcoin is a better safeguard against inflation
Inflation has become the most debated topic in the world of traditional finance as well as within the cryptocurrency community. It is to combat it that many central banks in various countries are raising their lending rates, which is negatively affecting the prices of a huge number of assets. In parallel, there is a debate about what might be considered the best safe haven for capital against inflation. According to Validus Power Corp.’s director of strategic initiatives. Greg Foss, director of strategic initiatives at Validus Power Corp. Let’s take a closer look at the expert’s point of view.
Note that the inflation situation around the world does leave much to be desired, and the rise in prices itself is a consequence of massive money printing during the peak of the pandemic in 2020. For example, at the end of August, the inflation rate in the Eurozone became known – it reached a record 9.1 percent.
Inflation rate in the Eurozone
Today it was also reported that the new year-on-year inflation rate in the USA amounted to 8.2 percent, although experts expected 8.1 percent. At the same time, core inflation stood at 6.6 percent instead of the expected 6.5 percent.
Against this backdrop, the advantages of cryptocurrencies have become more apparent. In particular, Bitcoin has a limited maximum coin supply of 21 million units and a fixed issuance rate that halves every four years.
To illustrate, here is a graph of BTC inflation from the Woobull platform. It is currently at 1.8 percent, which means that the supply of all bitcoins in circulation grows by that fraction over the course of a year.
Bitcoin inflation graph
At the same time, some cryptocurrencies are deflationary, meaning that their supply decreases over time. Here we can think of the Avalanche blockchain, where transaction fees in the form of AVAX cryptocurrency are wiped out. Also deflationary is the state of Etherium, which switched to Proof-of-Stake in September and received a serious drop in issuance.
Now that commissions on the Ethereum network are rising due to user activity, the volume of ETH being burned is outpacing the number of new ethers, which means the cryptocurrency is getting a supply reduction in a certain timeframe.
Here is a graph of the total number of new ethers generated since the blockchain update. A drop in the figure means a reduction in the cryptocurrency’s supply.
Volume of new ethers on the Ethereum network after the blockchain update
However, it is Bitcoin that some experts are singling out. Greg Foss is among them.
How to fight inflation?
Despite Bitcoin’s prolonged fall in price, Foss sees the cryptocurrency as “the most important technological and financial solution to the debt crisis.” Here’s his quote from an interview with Cointelegraph journalists
I believe Bitcoin is a 100 per cent hedge against inflation. What other solution to the problem is there? I don’t see any more of those.
Perhaps the already listed popular deflationary cryptocurrencies can also be recalled in this case. They are essentially a refined counterpart to the Bitcoin network, whose supply is constantly increasing and not decreasing.
Current rates of cryptocurrencies today
That said, Foss singled out BTC as a protective mechanism specifically against monetary inflation rather than the rise in the Consumer Price Index (CPI). Although the two are related, the expert has the following observation on the subject.
Bitcoin is not used as a pure CPI hedge, because the economy is no longer being stimulated by the issuing of new money. This is what caused all of our stocks to fall.
Inflation in the US
So far, the major cryptocurrency and the market for digital assets in general is at an early stage of development, but Voss believes that BTC’s role as an inflation-protection tool will become increasingly popular in the future. Already, BTC is a popular investment in Venezuela, Nigeria and Argentina, countries with some of the highest inflation rates in the world.
It should be noted that in countries with disastrous economic situations, buying BTC does make sense. After all, a cryptocurrency, if stored in a non-custodial wallet, can't be blocked by the government, which is not true for ordinary money in a bank account. On top of that, Bitcoin is proving to be relatively stable lately, and there are Stablecoins for those wishing to preserve the dollar value of their own crypto-assets.
Some people’s doubts about investing in BTC may be due to the cryptocurrency’s prolonged decline in price due to a bearish trend. However, it does not interfere with the fundamental development of the industry and its key players. For example, the day before, popular trading platform Crypto.com announced the establishment of its European headquarters in Paris, accompanying the announcement with an investment of $145.7 million. Accordingly, the company expects to further develop and popularise digital assets in general.
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Crypto.com platform ad
On 12 October, the Singapore-based platform announced that its new regional headquarters reflects Crypto.com’s “long-term development plans in France”. The platform’s management also plans to hire local expertise to support its operations in Europe. Additional resources will be devoted to expanding Crypto.com’s brand presence through customer engagement and educational initiatives.
Obviously, Bitcoin along with its popularity looks good against conventional fiat currencies, which are now facing inflation. However, BTC has worthy competitors that not only feature limited maximum supply, but also a gradually decreasing number of coins in circulation with more modern blockchains. In addition, more often than not, such networks consume far less power than Bitcoin. Therefore, they should not be overlooked either - including by first-time users of digital assets.
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