Inflation is felt all over the world. For the European Union, the latest estimates show an annual average inflation of 8.5%. In the United States, the rise in inflation is even more spectacular, amounting to 9.1%.
Why such an increase?
The health crisis has strained the global productive system and supply chains that have been globalized over the past 50 years. For the most part, they are based on the principle of just-in-time flows, that is, without stocks. The slightest disruption to this system therefore directly causes a shock in the markets because supply and commercial demand can no longer balance each other. It’s the price shock.
To this must be added the great return of conflict between states, a major environmental crisis, an energy crisis, etc.
Cryptocurrencies, a solution to protect yourself?
Protect yourself from what? If you don’t know how high inflation is dangerous, let me explain....
If a year ago you had €1,000, to keep it simple with an annual inflation rate of 10%, the following year, your purchasing power is no longer €1,000 but …. 900€. Yet you still have in your wallet 1000€. Your money quickly loses value, which causes many people to spend their savings as quickly as possible. This phenomenon creates even more inflation because the demand for consumer goods is increasing. This is a vicious circle.
Are cryptoassets a solution? Yes, but be careful, I’ll explain.
Cryptocurrencies are not backed by state currencies (with the exception of stablecoin), which means that they can theoretically protect against inflation in the euro, the dollar or other national currencies.
This effect is two-way, positive as well as negative. They can take more, see much more value than a euro for example. The great advantage really lies in their rarity. Unlike traditional currencies, the vast majority of cryptocurrencies are limited in number. It is impossible to print them endlessly. As you will have understood, it is quite the opposite of the state currencies which can according to the goodwill of the central banks print them.
Cryptocurrencies are therefore more stable from a systemic point of view. However, the lack of regulation makes the assets particularly volatile. It is therefore better to be able to wait several years in case of a decline to recover its earnings. Conversely, the increases can be spectacular.
Cryptocurrencies can be a good way to diversify its assets in the face of an exceptional global economic situation. However they are not a miracle cure and prudence remains applicable, because it is in moments of doubt and crisis that the greatest innovations but also the greatest scams are born.