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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
Over the past few months, there’s been a significant acceleration in core inflation. However, business costs have remained relatively flat. On the one hand, this suggests that businesses have started passing on price increases to customers. But on the other hand, it shows they haven’t been expanding their operations at the same rate as demand has increased. This indicates that businesses may not have enough customers to keep up with the demand for goods and services. However, many small businesses have flexibility in their price structure and can be easily weathered to adapt to the price surge. Crypto can also help small business owners to survive such an uncertain environment.
Crypto payment systems can sustain in a high inflation environment
Cryptocurrencies are meant to be used as a medium of exchange and a store of value. Therefore, cryptocurrencies are extremely susceptible to changing prices that can affect their overall value. If the prices of goods and services increase faster than the value of cryptocurrencies, then this leads to a decrease in the real-life worth of the assets. That is one reason the crypto market capitulates. However, it’s worth note-taking that the crypto payment system is on the rise in retail adoption, and users will have more alternative payment methods to pay off their purchases during the high inflation environment, which can set a foundation of the crypto payment infrastructure. Therefore, the negative impact of crypto winter will likely be reversed in the coming years.
Conclusion
Cryptocurrencies have been in a prolonged crypto winter due to low market prices, but the effect is starting to wear off. The prolonged crypto winter has also resulted in higher rates of inflation, which will likely persist until the end of 2020. The bad news is that the rate of inflation is expected to be persistent for a while. Therefore, the negative impact of crypto winter will likely be continued. In the meantime, consumers can take advantage of lower prices on goods and services due to the prolonged crypto winter, making it an ideal time to utilize more crypto payments if available to pay off purchases while enjoying the low costs of owning some cryptocurrencies.
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You can refer my previous article lists here and here
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2022 Prediction
2022 Prediction #1: L1 Scalability
2022 Prediction #2: L2 Bridges
2022 Prediction #3: Zero-Knowledge Proofs or ZKPs
2022 Prediction #4: Regulated Defi On-Chain KYC
2022 Prediction #5: Institutional Crypto Adoption
2022 Prediction #6: Defi Insurance
2022 Prediction #7: NFTs-Based Communities - DAO 1.5
2022 Prediction #8: Metaverse and NFTs
2022 Prediction #9: Web2 Companies’ FOMO
2022 Prediction #10: Time for DAO 2.0
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DAO The Way
DAO The Way Part 1
DAO The Way Part 2
DAO The Way Part 3
DAO The Way Part 4
DAO The Way Part 5
DAO The Way Part 6
DAO The Way Part 7
DAO The Way Part 8
DAO The Way Part 9
DAO The Way Part 10
DAO The Way Part 11
DAO The Way Part 12
DAO The Way Part 13
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Learn How To Defi
Learn How To Defi Part 1
Learn How To Defi Part 2
Learn How To Defi Part 3
Learn How To Defi Part 4
Learn How To Defi Part 5
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Crypto Comics
Crypto Comics
Crypto Comics - PoW
Crypto Comics - Who is Satoshi
Crypto Comics - What is Token
Crypto Comics - What is DeFi
Crypto Comics - What is Wallet
Crypto Comics - What is HODL
Crypto Comics - What is Coinbase
Crypto Comics - What is PoS
Crypto Comics - What is DAO
Crypto Comics - What is A Block
Crypto Comics - What is NFT
Crypto Comics - What is Fork
Crypto Comics - What is Web3
Crypto Comics - What is DeFi-2
Crypto Comics - What is Yearn Finance
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Crypto Comics - What is Hot Wallet
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Crypto Comics - What is Wallet Address
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Crypto Comics - What is Bart Pattern
Crypto Comics - What is Encryption
Crypto Comics - What is Consensus
Crypto Comics - What is Protocol
Crypto Comics - What is Stablecoin
Crypto Comics - What is ApeCoin
Crypto Comics - What is FOMO
Crypto Comics - What is Tokenomics
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Crypto Comics - What is to The Moon
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Learn Web3 in 100 Days
Learn Web3 in 100 Days - #1 What is the Internet and How Relevant to Web3
Learn Web3 in 100 Days - Day 2: What are the Browsers and Servers
Learn Web3 in 100 Days - Day 3: What are HTTP Status Code
Learn Web3 in 100 Days - Day 4: HTML and CSS and JS
Learn Web3 in 100 Days - Day 5: What is programming
Learn Web3 in 100 Days - Day 6: Markup, Elements, Tags, and Hyperlinks
Learn Web3 in 100 Days - Day 7: Style Your Web
Learn Web3 in 100 Days - Day 8: JS
Learn Web3 in 100 Days - Day 9: SQL
Learn Web3 in 100 Days - Day 10: Front-End
Learn Web3 in 100 Days - Day 11: Front-End Framework
Learn Web3 in 100 Days - Day 12: More HTML
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Modern Economic Nonsense
Modern Economic Nonsense - Inflation and Incentives
Modern Economical Nonsense - The Astrologist's Way
Modern Economical Nonsense - The VUCA World
Modern Economical Nonsense - Zug Tax and How to Run your Own Monopoly
Modern Economical Nonsense - Participatory Economy
Modern Economical Nonsense - Economic Models
Modern Economical Nonsense - Tokenomic Models
Modern Economical Nonsense - Design A Reputation-Based System
Modern Economical Nonsense — The Money Problem
Modern Economical Nonsense — The Treasury Problem
Modern Economic Nonsense — Bitcoin vs. Real Estate
Modern Economic Nonsense — A very long term view
Modern Economic Nonsense — Banking Collapse
Modern Economic Nonsense — A Wall Street Legend
Modern Economic Nonsense — A Modern Alchemy
Modern Economic Nonsense — Founder goes ghosting
Modern Economic Nonsense — Anonymous cool or fool
Modern Economic Nonsense — The market volatility
Modern Economic Nonsense — The money shortage
Modern Economic Nonsense — The web3 scams or not
Modern Economic Nonsense — All about debts
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Modern Economic Nonsense — A Show of Recession
Modern Economic Nonsense — A Myth of Valuation
Modern Economic Nonsense — Inflation becomes irrelevant
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Modern Economic Nonsense — Recession is coming
Modern Economic Nonsense — We are at the bear market, now what
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Modern Economic Nonsense — Bitcoin leads the market recovery
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Modern Economic Nonsense — The current stock market wants to go back to 2019 but ignore the technological solution of the future
Modern Economic Nonsense — Today's fear, tomorrow's cheer
Modern Economic Nonsense — An engineering recession
Modern Economic Nonsense — The market is broadening rug pull everyone
Modern Economic Nonsense — The self-fulfilling recession
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Yearn Finance Comic
Yearn Finance Comic - Part 1
Yearn Finance Comic - Part 2
Yearn Finance Comic - Part 3
Yearn Finance Comic - Part 4
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Curated Lists
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Defi 101
Defi 101 - Part 1
Defi 101 — Part 2
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Thoughts
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The End of the Stablecoin?
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How to deal with negative market sentiment
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Crypto VC Thoughts
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Crypto VC Thoughts: New Type of Stablecoin
Crypto VC Thoughts: Crypto Business Cycle
Crypto VC Thoughts: Crypto Business Cycle 2
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Disclosure: The article was written by a delusional author who is possibly a nut job without any questions whatsoever about expertise in the subject matters. You should not believe any words this author wrote or you may experience similar symptoms or even possibly become a nut job.
