With currency values falling across the world, many people are looking for a safe place to put their money. Somewhere it will, at the bare minimum, not be worth less in ten years than it is right now. So, is crypto protected from inflation?
As with most things in life (and definitely in the crypto space), the answer is complicated.
Why Is My Money Worth Less?
To understand the full scope and nuance of why we’re currently seeing high levels of inflation, you would need an economics degree. Luckily, understanding it at a high level is relatively simple.
When busted down to its basic level, our economy feeds off supply and demand. Prices go up, down, and sideways depending on the purchasing power people have and the number of goods available to buy. When either of those two things fall out of line, that’s when inflation kicks in.
With the pandemic came plenty of supply chain issues, the fallout of which is still being felt. Couple that with skyrocketing demand post-pandemic, and you’ve got a recipe for incredible rates of inflation. When demand is high and supply is low, prices rise. This is also why banks have been increasing interest rates. The reasoning is that if people are spending less, supply will be able to catch up to the demand.
Another Form Of Scarcity
Limited supply isn’t the only type of scarcity that affects currency. How much of that currency is available also plays a key role in how much value it holds.
Along with supply chain problems, the pandemic hit the lower and middle classes the most (with strong evidence that the middle class is completely eroding). The government stepped in to provide aid (as they should), but in doing so flooded the economy and devalued the currency.
To break it down to even simpler terms: If there are 100 pieces of material available, 50 is worth quite a lot. However, if an additional 100 pieces were found, that value of your 50 was just cut in half. On top of that, you’ll never get the time back you spent acquiring that material. “The government is literally stealing your time by consistently debasing your currency,” said Koleya Kerrington, co-found and CEO of Absolute Combustion.
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Where Does Crypto Come In?
First, it’s important to understand right away that not all cryptocurrency is created equal. You need to be very careful when it comes to blockchain-based currency. Many “coins” do not have the technology, infrastructure, or strategy to actually hold any value. They’ll often throw around words like Initial Public Offering (IPO) to entice investors, even though that definition doesn’t really cover what they’re doing.
Again, Koleya hit the nail on the head when she said “I can identify as a unicorn, but that doesn’t make me one”.
When it comes to sound money, Bitcoin is still top of the pile for a reason. While (as we stated earlier) it’s far from a black-and-white issue, Bitcoin is based on sound money principles.
For starters, you can’t create more of it as quickly as you can create paper money. This scarcity helps to protect its value. Bitcoin also does something called “halving”, which you can learn more about here.
Additionally, as more and more countries, vendors, and people adopt Bitcoin, there are actually places you can spend it. When talking about safe places to put your money, gold is often brought up. “Hold and buy gold all you want, but at the end of the day what can you do with it?” says Koleya.
No Rash Decisions
If you were hoping to read this article and leave with a simple “do this, don’t do that”, sorry but things are never that simple. Bitcoin has a solid foundation, but there is still plenty of uncertainty surrounding it. Unfortunately, we can’t just tell you to buy it and your money will be safe.
However, the good news is that there’s far more information for you to digest. Check out the latest episode of the Thinc. Underground Podcast, featuring Koleya Kerrington, as she discusses more about inflation, sound money principles, and cryptocurrency.