Modern Economic Nonsense — Crypto winter prolonged with high inflation persists

xuanling11
Coinmonks
Published in
4 min readJun 26, 2022

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It’s been a challenging few months for the crypto world with prices falling since the start of January. However, this has also had an impact on the wider economy, which has resulted in high inflation rates. Cryptocurrencies are considered as a medium of exchange and are not meant to be saved or stored for future use. Therefore, holding cryptocurrencies attracts higher interest rates than holding traditional assets like government bonds or cash. The effect is that even though prices have fallen, it’s left investors with higher amounts of capital invested in cryptocurrencies than before. Furthermore, the prolonged crypto winter is another contributing factor to increasing inflation rates; as there is less demand for goods and services outside of the crypto community.

The year-on-year inflation for retail goods has remained positive since December 2018. This means that although prices have fallen over time, they’ve only fallen by small amounts on each monthly basis. Meanwhile, core inflation (i.e food, energy and housing) has increased significantly since March 2021. In other words, while foods haven’t become more expensive since then, other essential items like rent and utilities have become a lot more expensive over time. Even as prices fall further in 2020, it seems unlikely we’ll see any significant reduction in inflation until after the end of Q1 2024, when third-quarter figures are released in early July 2022.

What determines consumer prices?

Consumer prices are determined by the supply and demand of goods and services. Typically, inflation occurs when there is an excessive increase in the supply of goods and services relative to demand. This usually happens when prices are kept too low for an extended period of time, or when demand is low but increasing.

Crypto winter delays price reduction

When prices fall due to a decrease in demand for cryptocurrencies, this also results in increased demand for goods and services that use cryptocurrencies as a payment method. As a result, prices increase due to the increased demand as well as lower supply.

Consumer price growth acceleration

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