According to CNBC, consumer price inflation in the United States jumped 4.2 percent from the previous year in April. Furthermore, the consumer price index jumped 5.4 percent from the previous year in June, the largest increase since the 2008 Global Financial Crisis. Excluding energy and food, the core CPI rose by 4.5 percent, the largest increase since 1991.
To combat inflation, the Federal Reserve has resorted to flooding the economy with dollars. According to Forbes, the M2 money supply in April 2021 was $20.11 trillion, a 30% increase from January 2020. The value of the currency falls when there are too many dollars in the system.
Inflation has risen throughout the same time period, and while it was “only” 2.6 percent in March, according to Trading Economics’ U.S. inflation rates data, it quickly grew in April, with CPI hitting 4.2 percent, 5 percent in May, and finally 5.4 percent in June. Bitcoin was booming at the moment, and it was performing admirably in the face of inflation.
As a result, investors who used bitcoin to hedge against inflation are ecstatic. We have witnessed institutional adoption of cryptocurrencies from corporations who see huge growth potential in bitcoin.
Bitcoin is also a good hedge against the social and political turmoil caused by inflation. Runaway inflation, for example, causes increasing uncertainty, impoverishment, and a loss of trust in institutions. Zimbabwe, Argentina, and Venezuela are a few instances. While such incidents are unusual in developed countries, it is always better to be safe than sorry. Remember that Venezuela was once one of the richest countries in the world, and look how they are doing now in terms of economics. As a result, embracing bitcoin as a buffer against insecurity, malfunctioning payment systems, and political control is a wise choice.
In most cases, raising interest rates is one method of reducing inflation. However, many current economies are in debt. As a result, this manoeuvre may have the opposite consequence. As a result, even as interest rates climb, the inflation rate may continue to grow.
Fortunately, bitcoin trading is primarily conducted in US dollars. As a result, as the value of the dollar falls, there is no reason why the BTC/USD pair should not continue to rise. Furthermore, the decentralised structure of the Bitcoin network, as well as the fact that it is based on technology developed by anonymous individuals, makes bitcoin a good financial asset. It is not limited to traditional economics.
Bitcoin is rather safe in today’s world, where old ideas fade and new ones emerge. Furthermore, as politics and economics change, bitcoin is a solid hedge against the likelihood of a great future.
Bitcoin’s global nature and restricted supply make it a great inflation hedge. It is not under the authority of any government or financial institution. As a result, it is not vulnerable to inflationary economic actions such as raising currency supply through printing. Indeed, the price multiplication of bitcoin as inflation surged during the Covid-19 outbreak is sufficient evidence of its tremendous potential as an inflation hedge. With growing inflation, the cryptocurrency has positioned itself as a safe refuge for investors.