Inspiration for today's brief article came from a video uploaded on Stronghold's channel, featuring a talk by Ina Bagne. (X: @iaminamaria)
Inflation is a hot topic worldwide, especially since 2020 (COVID period). In the past few years, we’ve seen inflation rise to levels not seen in over four decades, affecting almost everything – from our groceries to our investments. This rising cost of living impacts how we think about saving and spending, and it raises important questions about how different assets, like cryptocurrency, fit into the picture.
Inflation is often misunderstood as just a general rise in prices. However, it’s actually about the rate at which prices increase. This rate affects our money’s buying power – meaning $100 today buys less than $100 did a few years ago. When inflation is high, our money loses value faster, making it harder to save and invest effectively.
One major reason inflation occurs is an increase in money supply. For example, during the COVID-19 pandemic, governments worldwide, like the United States, spent trillions of dollars to support their economies. While this was necessary to protect jobs and businesses, it also caused a surge in money chasing the same limited goods and services, pushing prices up.
How Does Inflation Affect Cryptocurrency?
In times of inflation, people often look for assets that can protect their money’s value. Traditionally, this has included precious metals, stocks, bonds, and real estate. But now, cryptocurrency is becoming a popular alternative.
Take Bitcoin, for instance. Its limited supply of 21 million coins makes it less affected by inflation than regular money, which can be printed in unlimited amounts. Bitcoin’s scarcity means it could hold its value better when inflation rises, which is why some people see it as "digital gold." However, Bitcoin is not the only player in this space. And if you ask me, I'd say I'm one of those who believe that Bitcoin may eventually collapse someday—but not cryptocurrencies as a whole.
Stablecoins: A New Way to Hedge Against Inflation?
Stablecoins, like USDC, peg their value to stable assets, such as the US dollar. This pegging makes them less volatile and provides a safe haven in times of economic instability. Stablecoins could potentially allow people to protect their savings from high inflation rates in their local currency while still being able to access their money easily.
You might rightly ask, how can a stablecoin provide a solution to inflation when it's pegged to the dollar, the very currency we want to avoid to protect against inflation? The answer is straightforward. Not everyone comes from the U.S., and a stablecoin doesn’t have to be pegged to the dollar. There are many different types of stablecoins out there. Let me explain.
Stability Compared to Local Currencies: In regions experiencing hyperinflation, like Argentina or Turkey in recent years, the local currency may lose value much faster than the US dollar or euro. A stablecoin tied to one of these currencies can offer a relatively more stable store of value. For our American friends, another stablecoin, perhaps pegged to the Singapore dollar, could be an option. This is just an example and not financial advice.
How Does Stronghold $SHx Fit into This?
Stronghold’s SHx token, alongside its vision for decentralized finance, offers another way to adapt to inflation. As a payment network and cryptocurrency, Stronghold provides secure, fast transactions and cross-border payments, helping users preserve purchasing power and avoid rising costs. While Bitcoin’s scarcity is one way to combat inflation, Stronghold focuses on practical solutions, enabling everyday transactions that are quick, low-cost, and efficient. Stronghold's decentralized payment solutions reduce reliance on traditional banking systems, which are often directly impacted by inflationary policies.
With SHx, users and businesses might find an alternative way to manage their finances in an inflationary environment. As governments continue to print money, assets like SHx could be a viable option for people seeking financial stability in a more accessible, transparent, and decentralized system.
The rising interest in decentralized finance (DeFi) and digital assets, as shown by projects like Stronghold, suggests that people are increasingly looking beyond traditional finance. This shift could mean a growing role for cryptocurrencies in the global economy, offering tools to counter inflation’s impact on our money.
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Thank you for reading!
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