We hear a lot in our everyday lives that the global covid pandemic has affected our lives more than anything before. People were forced to stay at home for several months and everything was conducted virtually, and it is not surprising that the popularity of virtual coins gained at the same time. Let alone the fact that many aspects of our lives were changed and affected in a bad way, but the global economy was the one that the covid pandemic had the greatest impact. Restaurants were closed, entertainment places, such as cinemas, theatres were closed, in a nutshell, everything except hospitals was closed and moved to virtual space. However, the economy was not able to wholly convert into virtual space.
A lot of experts are discussing inflation as it is a very active topic nowadays, and that cryptocurrencies are not vulnerable to it, this is why it is more reliable during these tough times.
What is inflation and why cryptocurrencies are not vulnerable to it?
The U.S. Federal Reserve defines inflation as the increase in the price of goods and services over time, but many associate it with a change in the money supply or the total amount of money in circulation.
When asking the financial experts why in this case, for example, bitcoin can survive the inflation process, the argument is that central bank money printing will cause inflation or the decrease in the value of money over time. Bitcoin, by distinction, has a settled limit of 21 million coins that can ever be created. This limited supply allows bitcoin to resist inflation.
Inflation is thought to have a good effect on gold, to the asset that with a limited supply, while central banks have the possibility to print more money. But gold has recently lost some of its fame because of a new financial tool: bitcoin. Gold prices are down about 9% this year and are trading nearly 15% below the all-time high of more than $2,000 an ounce set last summer. At the same time, bitcoin is considered to be virtual gold and often used in the crypto-industry as a valuable asset for the future, or to store their values.
However, sometimes it is difficult to trust bitcoin’s performance as many things can have an effect on its price. Any media announcement, comment, celebrity Twitt or campaign can affect the demand on it. That makes people decide whether to buy cryptos or not. However there are also other ways by which people can get their hands on bitcoin, for example in the entertainment industry, many online websites offer free Bitcoin as a welcome bonus and it can affect the price as well. Even though those bonuses are not big in value, the quantity of them cannot be defined and may affect the market as well, as it is difficult to regulate those actions. It can be the advantage and disadvantage at the same time.
When the economy is facing massive inflation, gold also performs well, when the investors are worried about inflation - the same way as they are now. Moreover, counting on bitcoin when its price is very volatile and very difficult to make predictions, gold appears to be more reliable. When the investors are trying to find something that will hedge against inflation, bitcoin might not appear to be the one, due to its volatility.
As of today, as the US president has created a stimulus package of 1.5 trillion dollars, many people expect that it will cause the economy to overheat, leading to even greater inflation. That, in turn, could boost gold prices further. This is why experts ask the question, whether this package was necessary or not, as after the vaccination a lot of people are going back to their jobs.
The role that bitcoin can play
The Director of the market strategy at Alger made a comment regarding the current situation that the Gold is good for slightly higher inflation but not necessarily much higher real interest rates. The rates can spike dramatically and affect the return of gold and that might be one of the purposes that has lagged bitcoin lately.
This is why crypto-related companies or companies that generally support crypto-industries that bitcoin can be a better bet than gold. When the last year or at the beginning of 2021 bitcoin’s price was dramatically increased, one of the reasons can be the fact that investors have found it to be scare in comparison to gold. The total cap of bitcoin is 21 million and more than 18 million is already found or mined.
"There is a finite number of coins. That is why bitcoin can replace gold," said Steve Ehrlich, CEO of Voyager Digital (VYGVF), a cryptocurrency brokerage firm. "It really is more like digital gold and not necessarily a medium for payment." Most consumers are questionable to use gold or bitcoin to actually buy anything, but both assets could be considered to be investment winners at a time when consumer prices are rising.
Conclusion
Finally, to summarize, this is a fact and very valid reality that today we are facing very difficult economic conditions. There are many steps that are taken by a lot of parties and what it will result in, is still under the question mark. Many experts are trying to use all their potentials to make valid predictions to warn people to take the steps that would help them to survive in this difficult period of time. One of this kind of assumptions is that cryptocurrencies, and especially bitcoin are a good investment to store your asset and can perform strongly against inflation due to the several reasons that were mentioned above, one of the main being its limited number on the market and unlike money, it cannot be produced or printed. Some of the experts even say that it has the ability to take the place of gold, but as of today, they both have the ability to perform well during the inflationary period.
