The Cryptomise Sunday

Author: Mansi Patodi

25-Sept-2022

Impact of Inflation over Bitcoin

When the value of a country’s currency depreciates with time, it is described as inflation. During inflation, prices of goods and services rise with rising demand and lower supply. From the time when you could buy five commodities for INR1000 to; to the time when it’s challenging to buy two from the same amount, inflation has caught us off guard. To outpace this impact of inflation, people invest in commodities and assets like Gold and FDs.

Oodles of them think that Bitcoin can be an inflation hedge. Is it true? Let’s draw a few facts to understand the mystery behind the link between Bitcoin and Inflation and the impact inflation has on Bitcoin.

1) Bitcoin is accepted as payment by many retailers, but one cannot sweep aside the core property of money of “General acceptability.” Since only a confined community accepts Bitcoin, it cannot be proven as money. And for this reason, its value is less likely to be affected by inflation.

2) Bitcoin’s supply is capped at 21 million, and the rate at which new bitcoins are issued to the miners cuts to half every year. Bitcoin adoption is increasing at a much more pace than its mining rate. According to the reports revealed by Chainalysis, Global crypto adoption has surged to 881% from July2020-June 2021, and the growing demand for it makes it a highly inflationary asset.

3)If we compare the percentage increase of inflation to the percentage increase of Bitcoin’s price. Bitcoin tops the chart. However, the high volatility of the crypto market can turn the table anytime.

Inflation has no direct impact on Bitcoin. But whether Bitcoin is a hedge against inflation or not has yet to be seen.