The Relationship between Bitcoin and Inflation that You Need to Know

Bitcoin is often touted as a hedge against inflation, based on the premise that fiat currencies will depreciate over time due to massive money printing by central banks. In contrast, Bitcoin has a fixed supply of 21 million coins, giving it a distinct advantage against inflation. But, can Bitcoin really hold back inflation?

The COVID-19 pandemic has prompted many countries to increase the amount of money in circulation to meet the stimulus needs of their citizens, resulting in a decrease in the value of money. McKinsey Global reported that governments around the world had injected $10 trillion into the economy in June 2020 to mitigate the impact of the global crisis on the economy.

When fiat currencies depreciate, assets with a limited supply, such as stocks, real estate, shares, and Bitcoin, experience an increase in value. Despite widespread unemployment and economic turmoil, the prices of these assets continue to strengthen. Bitcoin, in particular, attracted traditional investors who recognized its potential as a hedge against inflation, triggering a historic price surge that pushed the decentralized digital currency more than 250%.

Understanding Inflation

Inflation refers to a sustained increase in the general price level of goods and services in an economy, accompanied by a decrease in the purchasing power of the currency. Cryptocurrencies like Bitcoin, due to their limited supply, typically experience low inflation rates.

Inflation impacts a variety of sectors, including utilities, autos, food, healthcare, and housing, reducing consumers' purchasing power and reducing the value of savings. Central banks around the world monitor inflation and adjust monetary policy to maintain stability.

Bitcoin and Inflation

Although the economics of the Bitcoin market are complex, certain cryptocurrencies, including Bitcoin, are designed to contain inflation or maintain predictable low inflation rates. However, recent economic developments suggest Bitcoin is performing less effectively as a hedge against inflation, primarily due to its increasing correlation with broader market movements.

Bitcoin's Role in Inflation

Largely driven by institutional investment, Bitcoin's performance is increasingly aligned with general market trends. As a result, when inflation concerns arise, the Federal Reserve will likely implement monetary tightening measures, resulting in a decline in the prices of various assets, including Bitcoin.

Cryptocurrency Inflation Dynamics

Although considered “inflation-resistant,” cryptocurrencies, including Bitcoin, experience inflation as new coins are mined. However, Bitcoin's inflation rate will decrease over time as mining rewards automatically halve every four years.

While Bitcoin's annual inflation rate may not be a major concern for investors as long as its value continues to appreciate against fiat currencies, other cryptocurrencies may show different performance trajectories.

Stablecoins, for example, are pegged to fiat currencies and are considered a low-volatility savings option. However, these countries are vulnerable to inflation and can depreciate over time as the value of their reserve currency decreases.

Is Bitcoin Deflationary or Inflationary?

Bitcoin is technically an inflationary currency designed to mimic gold's stable inflation rate. However, Bitcoin cannot be considered deflationary because its supply will continue to increase until it reaches a maximum limit of 21 million coins, which is expected to occur around 2140. At this point, Bitcoin will transition to a disinflationary state, characterized by a constant monetary base and an unstable supply. can be changed.

Is Bitcoin Inflation Resistant?

While gold has traditionally served as the hedge of choice against inflation, cryptocurrencies like Bitcoin offer an attractive alternative. Rather than being an “inflation-resistant” asset, Bitcoin can be considered an “inflation-resistant” asset, thereby providing investors with a viable means of protecting themselves from inflation risks.

Bitcoin's limited supply makes it an effective inflation hedge by preventing new coins from entering circulation. Additionally, its international appeal and decentralized nature differentiate it from conventional assets such as gold, thereby offering investors greater diversification and protection against the economic and political risks associated with traditional markets.

With its durability, portability and security, Bitcoin presents a practical alternative to gold as an inflation hedge. Its decentralized nature ensures universal accessibility, making it an attractive option for investors looking to preserve their wealth in the face of inflationary pressures.

How To Buy Crypto With Bittime

You can buy and sell crypto assets in an easy and safe way via Bittime . Bittime is one of the best crypto applications in Indonesia which is officially registered with Bappebti. 

To be able to buy crypto assets on Bittime, make sure you have registered and completed identity verification. Apart from that, also make sure that you have sufficient balance by depositing some funds into your wallet. For your information, the minimum purchase of assets on Bittime is IDR 10,000. After that, you can purchase crypto assets in the application. 

Learn How to Buy Crypto on Bittime.

Monitor price chart movements of Bitcoin (BTC), Ethereum (ETH), Solana (SOL) and other cryptos to find out today's crypto market trends in real-time on Bittime.

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DISCLAIMER : This article is informational in nature and is not an offer or invitation to sell or buy any crypto assets. Trading crypto assets is a high-risk activity. Crypto asset prices are volatile, where prices can change significantly from time to time and Bittime is not responsible for changes in fluctuations in crypto asset exchange rates.