Cryptocurrency has hyped up the world with the immense profits it promises but have you ever thought of bitcoin being affected by inflation? Many investors are lining gold with bitcoin but many believe that bitcoin can be an asset to be relied on in this inflationary environment. Can we take bitcoin as protection or hedge against inflation? Let us find out.
Reasons for inflation
Generally, inflation is an increase in the services and goods in any country for some time. There are many reasons for inflation. Majorly the decrease in the purchasing of the fiat currency can cause inflation. It can also lead to hyperinflation if the purchasing power of the fiat currency decreases to a critical level and the price of the goods rises to a higher level. As a result, good food becomes unaffordable for the people. Furthermore, operating a business becomes fibrous in such periods
Unemployment and inflation
Unemployment is usually correlated with inflation. The money supply is more evenly distributed among the employed individuals but when the unemployment spikes, inflation happens. This can be exemplified during the covid-19 pandemic when the world was stagnant. there was aggressive inflation because of the supply shocks due to lockdowns. The lockdowns made all the malls, cinemas, and shops to shut down.it caused the collapse of huge businesses and in-turn there was unemployment everywhere. People were deprived of their jobs.
Bitcoin is usually considered as a protection or shield against an inflationary environment. Hyperinflation has happened throughout history and has caused many countries to collapse. The structure of bitcoin is technologically encouraging for a deflationary attitude.it also gives a stable store of value and that is why people often replace it with gold. In the dark periods of inflation, bitcoin becomes a relief. The virtual cryptocurrencies act as a meaningful hedge against all those economics and policies during inflation
Protection against political instability
In many countries like Zimbabwe, the corruption in fiat currency also causes inflation. So, in such situations, bitcoin becomes an alternative for fiat currencies. moreover, it uplifts the collapsed businesses because you can make cross-border transactions. It can increase the international businesses in such a country that would in-turn increase the economic status of the country. Therefore, it is a shield against inflation as well the political instability and social disruption of the country.
Effect of the Central Bank.
Usually, the central bank and other financial institutions are also leading causes for such situations. Inflation moves in tandem with the strength of the local economy but when the currency drops, the prices of the imported goods trigger up at the same time, the rates of the dollar also increase which can cause international businesses to decline. So, in such cases when you have bitcoin, you can easily carry your international businesses. therefore, bitcoin becomes a rescue for such a country
The Economic stability during the pandemic
Pandemic has been a roller coaster ride for the people. It was a period of a declining economy and higher inflationary values. The restrictions of lockdowns caused a severe decrease in the business. But what gave them relief lied in the crypto world. There were maximum transactions done across the borders. The best part was that people who never used bitcoin came into this and after the pandemic, they started to trade as well.
Bitcoin has now digitalized the world and people are happy about it. It has caused immense profits to many and is still benefitting. It also became an edge when it loaded people through the trades. Trading became much easier with the bitcoin rush that assisted many traders. You can see more on their website and start trading. The digital world demands you to be into this crypto world. Moreover, bitcoin with these sites is the hedge for you. So , each one of you should start their journey in this industry.