news4global
  • Home
  • Bitcoin
  • Blockchain
  • Business
  • Latest news
  • Market
  • Regulation
  • VideosHot
    Bitcoin At MAJOR Crossroads (IS BTC PRICE ABOUT TO CRASH?)

    Bitcoin At MAJOR Crossroads (IS BTC PRICE ABOUT TO CRASH?)

    Could the FIRST Cryptocurrency Pre Sale Altcoin of 2023 EXPLODE?

    Could the FIRST Cryptocurrency Pre Sale Altcoin of 2023 EXPLODE?

    ये Coins कर सकते बर्बाद ‼️  Solana Bad news | 30 दिसंबर को बड़ी हलचल | Cryptocurrency | crypto news

    ये Coins कर सकते बर्बाद ‼️ Solana Bad news | 30 दिसंबर को बड़ी हलचल | Cryptocurrency | crypto news

    Quant QNT Price News Today Technical Analysis – Price Now! Quant Price Prediction 2022

    Quant QNT Price News Today Technical Analysis – Price Now! Quant Price Prediction 2022

    🔥 100X POTENTIAL? 🔥 LONG TERM BNB PRICE PREDICTION – Crypto News Today

    🔥 100X POTENTIAL? 🔥 LONG TERM BNB PRICE PREDICTION – Crypto News Today

    Gravitas: Cryptocurrency: New tool for money laundering

    Gravitas: Cryptocurrency: New tool for money laundering

    Last Chance to Buy Ada (Cardano) || Ada (Cardano) Price Prediction || Ada News Today || Ada Update

    Last Chance to Buy Ada (Cardano) || Ada (Cardano) Price Prediction || Ada News Today || Ada Update

    20/12/2022 Cryptocurrency Tamil news today | Shiba inu coin news | luna crypto news | Bitcoin Tamil

    20/12/2022 Cryptocurrency Tamil news today | Shiba inu coin news | luna crypto news | Bitcoin Tamil

    🚀Binance ने Cryptowalo को Goodnews दी ✅️🚀| Cryptocurrency | Shiba inu news today

    🚀Binance ने Cryptowalo को Goodnews दी ✅️🚀| Cryptocurrency | Shiba inu news today

No Result
View All Result
  • Home
  • Bitcoin
  • Blockchain
  • Business
  • Latest news
  • Market
  • Regulation
  • VideosHot
    Bitcoin At MAJOR Crossroads (IS BTC PRICE ABOUT TO CRASH?)

    Bitcoin At MAJOR Crossroads (IS BTC PRICE ABOUT TO CRASH?)

    Could the FIRST Cryptocurrency Pre Sale Altcoin of 2023 EXPLODE?

    Could the FIRST Cryptocurrency Pre Sale Altcoin of 2023 EXPLODE?

    ये Coins कर सकते बर्बाद ‼️  Solana Bad news | 30 दिसंबर को बड़ी हलचल | Cryptocurrency | crypto news

    ये Coins कर सकते बर्बाद ‼️ Solana Bad news | 30 दिसंबर को बड़ी हलचल | Cryptocurrency | crypto news

    Quant QNT Price News Today Technical Analysis – Price Now! Quant Price Prediction 2022

    Quant QNT Price News Today Technical Analysis – Price Now! Quant Price Prediction 2022

    🔥 100X POTENTIAL? 🔥 LONG TERM BNB PRICE PREDICTION – Crypto News Today

    🔥 100X POTENTIAL? 🔥 LONG TERM BNB PRICE PREDICTION – Crypto News Today

    Gravitas: Cryptocurrency: New tool for money laundering

    Gravitas: Cryptocurrency: New tool for money laundering

    Last Chance to Buy Ada (Cardano) || Ada (Cardano) Price Prediction || Ada News Today || Ada Update

    Last Chance to Buy Ada (Cardano) || Ada (Cardano) Price Prediction || Ada News Today || Ada Update

    20/12/2022 Cryptocurrency Tamil news today | Shiba inu coin news | luna crypto news | Bitcoin Tamil

    20/12/2022 Cryptocurrency Tamil news today | Shiba inu coin news | luna crypto news | Bitcoin Tamil

    🚀Binance ने Cryptowalo को Goodnews दी ✅️🚀| Cryptocurrency | Shiba inu news today

    🚀Binance ने Cryptowalo को Goodnews दी ✅️🚀| Cryptocurrency | Shiba inu news today

No Result
View All Result
news4global
No Result
View All Result
Home Bitcoin

Crypto will become an inflation hedge — just not yet

August 27, 2022
Reading Time: 6 mins read
0
Crypto will become an inflation hedge — just not yet
189
SHARES
1.5k
VIEWS
Share on FacebookShare on Twitter

Related articles

Bitcoin pro traders warm up the $24K level, suggesting that the current BTC rally has legs – Cointelegraph

What Is Tokenomics? The Investor's Guide – Blockworks

February 8, 2023
Bitcoin pro traders warm up the $24K level, suggesting that the current BTC rally has legs – Cointelegraph

Fed Board Prohibits Member Banks from Holding Cryptoassets as … – Blockworks

February 8, 2023

In theory, Bitcoin (BTC) should serve as a hedge against inflation. It’s easy to access, its supply is predictable, and central banks cannot arbitrarily manipulate it.

However, investors aren’t treating it that way. Instead, the cryptocurrency market is mirroring the stock market. Why is that? Let’s dive into what prevents cryptocurrencies from acting as a hedge against inflation, and what needs to happen to make them a hedge in the future.

Crypto could be a hedge, but it comes with inconveniences

Cryptocurrencies present a unique solution, given their lack of a central governing bank. You can’t lose trust in something that doesn’t exist. Its supply is finite, so it naturally appreciates in value. People using a blockchain with proof-of-stake protocols can access their funds at any time, while continuously earning staking rewards on their current balance. This means that the actual value of annual percentage yield is tied to the economic activity on the chain via its treasury and staking reward distribution mechanics. Those properties seem to address the cause of inflation in the traditional monetary systems — but some roadblocks remain.

Related: Inflation got you down? 5 ways to accumulate crypto with little to no cost

For starters, let’s examine the reasons why people invest in and hold cryptocurrencies. The majority of cryptocurrency holders see the future potential of those technologies, meaning some of their value is not currently present. They are speculative investments. Decentralization has been achieved by Bitcoin, but its exuberantly high energy costs remain unaddressed, and the majority of mining forces are still aggregated into a dozen mining pools. Ethereum has similar issues with energy consumption and mining pool centralization. Ethereum also has a security problem — more than $1.2 billion has already been stolen on its blockchain this year.

There’s also the issue of decentralized exchanges, or DEXs, which are currently not as fit for use as centralized exchanges. The DEX with the highest transaction volume, Uniswap, offers inefficient pricing compared with a centralized exchange. A simple trade of $1 million in Tether (USDT) for USD Coin (USDC) would cost over $30,000 more in fees and slippage than when executed on a centralized exchange.

These are technical problems that have solutions

Granted, these issues are being addressed. Several third-generation blockchains are tackling energy consumption and decentralization head-on. Privacy is improving. Crypto holders are beginning to accept that their wallets will always be fully traceable, which will prove enticing to new users who have previously been hesitant over blockchain’s hypertransparency. Projects seeking to merge traditional finance’s mathematical rigor with the native attributes of cryptocurrency are tackling the problem of DEX inefficiency.

Related: Ronin hackers transferred stolen funds from ETH to BTC and used sanctioned mixers

Mass adoption and integration need to happen before crypto can act as a bulwark against inflation. Crypto has characteristics of future value in an ecosystem that is currently struggling to establish its fundamentals. The crypto economy is still waiting for applications that will take full advantage of decentralization without sacrificing the quality and experience, which is especially important for widespread adoption. A payment system where each transaction costs $5 and the exchanged value is regularly lost will remain unfeasible.

Until the top cryptocurrencies can be used efficiently for real-world payments and decentralized applications provide a similar level of utility as centralized systems, crypto will continue to be treated as a growth stock.

Inflation is caused by a lack of trust — something crypto still needs

Inflation isn’t caused by just printing more money, which is to say that the presence of an asset doesn’t automatically cause its value to go down. Between September 2008 and November 2008, the number of billions of U.S. dollars in circulation tripled, yet inflation went down.

Inflation has much more to do with public distrust of the central monetary system. This lack of confidence — combined with corporate price gouging, the upheaval caused by pandemic relief packages and significant supply chain disruptions (accelerated, in part, by the war in Ukraine) — has landed us in the current crisis. The big money-print of 2021 didn’t cause inflation, but it magnified it.

Related: Has US inflation peaked? 5 things to know

In terms of presence, the supply of funds alone is not an overly significant issue for a store-of-value currency. What is stored is not necessarily part of the circulating supply. Gold, for example, exists in large volumes in the form of jewelry, bullion and so on, but in much smaller volumes on the commodity market. A market that took into account all the mined gold on earth would have a totally different price. Because this jewelry and bullion are not traded on the market at all, they do not affect the supply-and-demand curve. The same applies to currency.

Wow Year on year inflation in Europe in July. pic.twitter.com/VGWQ1OQOcB

— Arnaud Bertrand (@RnaudBertrand) August 27, 2022

Inflation is the result of a loss of trust that an asset is able to store its value over a long period of time. Most goods in this world are finite, so every party aware of the raised supply but unsure of the monetary policy will automatically factor it into their prices. Inflation becomes a self-fulfilling prophecy.

Crypto as an inflation hedge is possible, but not in the current climate

Cryptocurrencies fail as an inflation hedge during times of high volatility and market uncertainty. That said, they generally excel in steady growth environments where they easily outperform the market and where the relatively small market capitalization compared with fiat currencies plays in their favor as a growth stock. Current solutions to the problem of usability aren’t sustainable due to their speculation-based nature and low transaction volumes. The fall of financially unsound blockchains affects the entire ecosystem, which means that potential long-term solutions keep being derailed by scammers.

Related: Is Bitcoin really a hedge against inflation?

The more responsible and diligent the crypto community becomes, the more every sound protocol will benefit, and crypto will become a genuine hedge against inflation. Because cryptocurrencies currently follow growth stock patterns, they act as a good hedge against inflation during periods of stable growth but fail during times of financial crisis. As cryptocurrencies evolve, they’ll become an effective bulwark during these downturns too.

These days, it’s prudent to err on the side of caution when it comes to crypto investing during periods of market turmoil, and it would be unwise to use crypto as the only tool for shoring up investments against inflation. But this will shift as blockchain protocols continue to mature, and we’ll see an increase in the adoption and stability of cryptocurrencies as inflation hedges. The tools are already in place.

Jarek Hirniak is the founder and CEO of Generation Lambda and a certified quant with more than 20 years of software development experience. He spent six years working on trading systems at Citadel Securities and UBS, where he developed a series of novel trading systems and trading-related software platforms while leading multidisciplinary teams.

The opinions expressed are the author’s alone and do not necessarily reflect the views of Cointelegraph. This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice.

Share76Tweet47

Related Posts

Bitcoin pro traders warm up the $24K level, suggesting that the current BTC rally has legs – Cointelegraph

What Is Tokenomics? The Investor's Guide – Blockworks

by admin
February 8, 2023
0

What Is Tokenomics? The Investor's Guide  Blockworks

Bitcoin pro traders warm up the $24K level, suggesting that the current BTC rally has legs – Cointelegraph

Fed Board Prohibits Member Banks from Holding Cryptoassets as … – Blockworks

by admin
February 8, 2023
0

Fed Board Prohibits Member Banks from Holding Cryptoassets as ...  Blockworks

Bitcoin pro traders warm up the $24K level, suggesting that the current BTC rally has legs – Cointelegraph

Cryptocurrency News: Bitcoin Price Rises Again After Stalling To … – Investor's Business Daily

by admin
February 7, 2023
0

Cryptocurrency News: Bitcoin Price Rises Again After Stalling To ...  Investor's Business Daily

Bitcoin pro traders warm up the $24K level, suggesting that the current BTC rally has legs – Cointelegraph

Airswift CEO: Crypto Future Is Decentralization With Regulated Infrastructure – PYMNTS.com

by admin
February 7, 2023
0

Airswift CEO: Crypto Future Is Decentralization With Regulated Infrastructure  PYMNTS.com

Bitcoin pro traders warm up the $24K level, suggesting that the current BTC rally has legs – Cointelegraph

Britcoin digital pound decision to be made by 2025 – Sky News

by admin
February 6, 2023
0

Britcoin digital pound decision to be made by 2025  Sky News

Load More
  • Trending
  • Comments
  • Latest

Bitcoin’s Main Rival Ethereum Hits A Fresh Record High: $425.55

March 3, 2022

Bitcoin Is ‘Definitely Not a Fraud,’ CEO of Mobile-Only Bank Revolut Says

March 2, 2022
How online shopping has changed over the last 30 years | National

How online shopping has changed over the last 30 years | National

April 6, 2022
Protocon Announces ‘Contract Model’, an Alternative

Protocon Announces ‘Contract Model’, an Alternative

April 6, 2022

US Commodities Regulator Beefs Up Bitcoin Futures Review

0

Bitcoin Hits 2018 Low as Concerns Mount on Regulation, Viability

0

India: Bitcoin Prices Drop As Media Misinterprets Gov’s Regulation Speech

0

Bitcoin’s Main Rival Ethereum Hits A Fresh Record High: $425.55

0
Bitcoin pro traders warm up the $24K level, suggesting that the current BTC rally has legs – Cointelegraph

Polygon Recruits Top Aave Lawyer Rettig for Crypto Policy Role – Bloomberg Law

February 9, 2023
Bitcoin pro traders warm up the $24K level, suggesting that the current BTC rally has legs – Cointelegraph

Blockchain developers have taken a decentralized interest in cloud storage – will it shake up the industry? – Forkast News

February 9, 2023
Bitcoin pro traders warm up the $24K level, suggesting that the current BTC rally has legs – Cointelegraph

Crypto ATM Operator Cash Cloud Files for Bankruptcy – PYMNTS.com

February 9, 2023
Bitcoin pro traders warm up the $24K level, suggesting that the current BTC rally has legs – Cointelegraph

Coinbase's CEO Cites 'Rumors' the SEC May Ban Crypto Staking for Retail Customers – CoinDesk

February 8, 2023

Latest News

Bitcoin pro traders warm up the $24K level, suggesting that the current BTC rally has legs – Cointelegraph

Polygon Recruits Top Aave Lawyer Rettig for Crypto Policy Role – Bloomberg Law

February 9, 2023
Bitcoin pro traders warm up the $24K level, suggesting that the current BTC rally has legs – Cointelegraph

Blockchain developers have taken a decentralized interest in cloud storage – will it shake up the industry? – Forkast News

February 9, 2023

Categories

Site Navigation

  • Home
  • About us
  • Contact us
  • Privacy policy
  • Terms and services
  • Home
  • About us
  • Contact us
  • Privacy policy
  • Terms and services

© 2022 Designed by news4global

No Result
View All Result
  • Home
  • Bitcoin
  • Blockchain
  • Business
  • Latest news
  • Market
  • Regulation
  • Videos

© 2022 Designed by news4global