How You Can Use Stable Coins Like BUSD as a Stable Hedge against Inflation
Inflation is just one of the aspects an investor has to keep in mind when strategizing how to secure their assets. Although inflation can be positive or negative, depending on the exact situation as well as the person concerned, it’s no doubt a complex economic phenomenon that has lasting damaging effects if it becomes too high. That is why, besides investing in more stable assets like gold or real estate, some investors are looking to cryptocurrencies to solve their worries related to future inflation.
The processing methods of cryptocurrencies and NFTs are rapidly expanding as developers’ minds are more focused on such advanced essentials. Since the emergence of cryptocurrency, we have witnessed the birth of thousands of new coins. But due to the rising volatility inherent to them, a lot of people tend not to risk their money and most often stay on the edge of investing in crypto.
This issue doesn’t tend to decrease the market value of cryptos like Bitcoin or Ethereum. Still, at the same time, these attitudes actually play a vital part in moving the investors’ interest towards stablecoins.
But what are stablecoins? How can they be utilized as a sturdy hedge against inflation? What are various commonly used stablecoins in the market?
Stablecoins are referred to as another type of cryptocurrency whose market price is linked to the value of certain assets like fiat or gold. These assets are also related to hedging against other volatile cryptocurrencies. The most commonly used stablecoins are Binance USD (BUSD) and Tether (USDT), which are considered US dollar 1:1.
Investing in stablecoins seems to be a good measure to take, yet one question still stands, how do these stablecoins work as a stable hedge against inflation? And a better question is: how does inflation affect the economy of marketization?
Inflation — a good source or not?
Inflation is the substantial rise in the product’s price triggered by the deteriorating value of the currency rate, such as the US dollar. While it is believed to be caused by the government in order to print more money, inflation is considered a positive note for the economy from that point of view.
But, of course, there’s more to it than that. Typically, low inflation is alleged to invigorate investment, spending and deriving for healthy economic growth, whereas hyperinflation is what we call it when inflation goes out of control. This leads to the high rise in prices of economic goods and services.
So, in short, hyperinflation is a constant threat to the rising market and to solve such a matter, people try to protect their fiat by investing in assets like gold and, more recently, crypto as a hedge against inflation.
Isn’t Bitcoin better suited?
Regarding using Bitcoin or any other cryptocurrency, their nature is seen as deflationary assets aiding fiat currencies to protect themselves from hyperinflation. But crypto is also special in that its interest rate value cannot be manipulated like fiat assets. Moreover, the volatility in cryptocurrencies like Bitcoin is often high and thus, goes less effective against hyperinflation. This volatility is especially noticeable in Bitcoin, which was around $30,000 in July, underwent a massive drop yet was up by 2% last year and then again rose to a gradual 300% in August.
Stablecoin working as a stable hedge
The above facts show that Bitcoin as a hedge seems insecure for storing value because it lacks the trust and stability needed to work as a hedge against inflation. This issue has swapped investors’ minds toward using gold, but the promise stablecoins show is changing things.
Through stablecoins, you don’t have to worry about storing value. It has a high rate of stability and trust and thus, is highly applicable to be used as a hedge.
Because fiat currencies are prone to inflation and don’t have price stability, they become a poor store of value, foiling people not to save money. Thanks to how easy crypto investing has become, anyone in the world with a better internet connection can purchase stablecoins and protect their wealth from the threat of hyperinflation.
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