Experts and investors are looking for a way to store their assets and money in an environment that doesn’t lose its value due to the rise in inflation in fiat currencies. Many investors started to hold cryptocurrency as a hedge against rising inflation. We will be discussing Bitcoin as well as cryptocurrency, which can be used to hedge against falling fiat values and rising prices.
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Protecting Yourself Against Inflation
To hedge against rising inflation, investors may want to store their funds in a manner that their investments retain some value even if the fiat currency in their country falls in value. Stocks, real estate, and gold are all alternatives to fiat currency savings – both as an investment option and as a hedge. However, gold is no longer a reliable hedge. Real estate has low liquidity, high maintenance costs, and high transaction costs. A good knowledge of the stock market is essential for buying and selling shares or holding them. This skill set is not often found in casual investors.
Bitcoin as a hedge against inflation
Although gold is not without its faults, real estate requires maintenance, and stock trading can be complex. Investors may consider cryptocurrency to be an alternative investment option to hedge against inflation.
Two factors make Bitcoin an effective hedge against inflation. The scarcity of tokens and the decentralized nature blockchain-based digital currency make it an effective hedge against inflation.
Limited supply
Overprinting can lead to inflation in fiat currency. The reason is that new money creates excess supply which causes the value to drop. Inflation is when the money supply grows faster than the production of goods or services.
Bitcoin has a limit on the number of tokens that can be created or mined. The 21 million coins that can be created and mined will only ever be available for use once they are all gone. There are currently just 19 million Bitcoins (BTC) in circulation. The Bitcoin halving occurs approximately every four years to stop a rapid increase in Bitcoin creation. This event reduces the amount of Bitcoin that is produced per block. It slows down the production and keeps the price steady.
Bitcoin is distributed and no one authority or person controls it. Instead, the network is maintained by thousands of nodes (computers) around the globe. They verify transactions and maintain the blockchain. The network and asset are not at risk of being hijacked or attacked by any one authority. There is also no concern about manipulation or corruption that might affect the currency’s value.
The asset’s decentralized nature makes it resistant to theft and double-spending. This means that both retailers and institutions can trust Bitcoin as an asset that can withstand both supply and threat.
Bitcoin: Is it a good asset to hedge against fiat?
Research shows that investors who bought Bitcoin to hedge against inflation have seen a greater return on their investment than those who invested in gold, stocks, or real estate. The huge return on investment that cryptocurrency has provided over the years has made it a popular choice for investors. It boasts much higher margins than other alternatives and has a greater rate of return than any other assets.
There are risks and dangers associated with investing in Bitcoin. Bitcoin transactions cannot be tracked or undone. It is impossible to recover the tokens if they are lost or stolen, if you send Bitcoin incorrectly or hack your Bitcoin. Restrictive factors may also be an issue depending on where you live. Some countries ban cryptocurrency trading and prohibit the ownership of Bitcoin.