How Cryptocurrencies can help reduce the effect of Inflation.
Inflation has been a trending topic in recent times. In June 2022 the US inflation rate hit an all time high of 9.1% in over 41 years. This has not been peculiar to the United States alone but it has been a global trend.
Take for example a country like Turkey with over 78.62% Inflation rate. If that sounds bad, there are worse case studies. Let’s take a look at Zimbabwe having a whopping sum of 192% Inflation rate.
This Inflation rate effects the livelihood and standard of living of citizens in numerous ways and it has shown it can lead to a breakdown of law, or in the case of Sri Lanka, they recently faced massive protest and dismantling of governing structures. All these issues can be directly pointed to the high inflation rate currently ravaging the country at 54.6%. Well what if I told you cryptocurrencies may be our salvation in cases like these?
Bitcoin has proven itself to be one of the best performing assets in the past ten years. Some people are concerned due to the high volatility experienced in trading or owning bitcoins but looking at the bigger picture let’s compare Bitcoin to the Dollar and Gold using historical data in the time frame of ten years. At the end of this we could come to a conclusion on which these assets are actually inflation proof.
Let’s do a quick ten year analysis on Gold and Bitcoin.
Gold at its yearly high at the year 2012 was $1,768/oz and its yearly high in 2022 is $1,918.04/oz while Bitcoin at its yearly high in 2012 was $5.3 and its yearly high as of the time of writing is $45,423.
While bitcoin saw a heavy percentage growth of 856937.7% Gold saw a meager 8.5% increase in its span of ten years. According to the Chained CPI measurement, $1 in 2012 is equal in purchasing power to $1.22 in 2022
That is to say even if you decided to save dollars over a span of ten years you’d be losing 22 cents per dollar.
So we have proven that Bitcoin would be a better hedge in cases of inflation. Cryptocurrencies have even gone ahead in helping countries that have suffered heavy devaluation. Taking into perspective countries like Lebanon and Venezuela with an extremely devalued local currency has left them with no choice but to turn to other means of exchange. It has also shown to be of great help in countries where foreign reserves have been consistently dwindling over the years which normally leads to scarcity of Dollars.
In Nigeria, a lot of the young population have taken to stable coins as a way of hedging themselves against inflation and sourcing foreign exchange in Dollar scarcity.
If it has gotten to this point, I’m sure and more than convinced in such trying times cryptocurrencies provide a seemingly better solution to the ever lingering problem of inflation. So it will be advisable to more governments around the world to embrace blockchain technology within their legal frameworks.
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