Can Bitcoin Act as an Anti-Inflation Pill When the Economy is Falling Apart?

Bitcoin is a successful inflation hedge, but investors need to be careful right now.

The skepticism around Bitcoin and investing in cryptocurrencies has reduced with the growing dominance of digital assets in the financial and economic markets. It is quite shocking, yet spectacular, to track the rising influence of cryptocurrencies in institutional and personal investment strategies. Among all other digital assets, Bitcoin has emerged as one of the most popular digital assets that can be used as a store of value, and also as a hedge against inflation. When inflation rises, the value of the national fiat currency degenerates, making it extremely difficult for investors to hold value in times of crisis. This is where Bitcoin comes in. During times of financial crises, investors generally purchase assets that tend to rise in value more than inflation. In return, this ensures that the overall value of their investments stays at a considerable rate. So, the rapid growth and adoption of Bitcoin have made investors and crypto analysts realize that crypto is a perfect investment as an inflation hedge.

Recently, after the crypto market meltdown by the end of 2021, Bitcoin lost more than half of its market dominance as its value fell as low as US$39,000 from its all-time high which was US$68,000. This is one of the many reasons why experts seem to think that the crypto is finally losing its reputation as an inflation hedge. Since the emergence of the Covid-19 pandemic, the importance of Bitcoin was realized not only by individual investors but also by nations, which is why El Salvador became the first country to accept Bitcoin as a legal tender. Pursuing that, many other nations and major business organizations stepped in to adopt Bitcoin as a legal mode of payment. But currently, the conditions of the BTC token seem to be dwindling amid its degrading market value. Besides this, one of the many reasons why several financial experts believe that Bitcoin is not a suitable hedge against inflation is because of investor sentiments. For any asset to become an inflation hedge, investors must actually acknowledge it as an asset and hold it when its value rises. But currently, it isn't the case right now.

So, how has Bitcoin managed to remain as a hedge against inflation?

If we look at the swinging conditions of Bitcoin prices lately, it will not seem like the BTC token can actually make it a successful inflation hedge. But since its launch, the BTC token has successfully retained its fame as a safe haven during economic crises, and due to various reasons. Like gold, Bitcoin is not governed by any particular currency or economy. Instead, it acts like a global asset class that demonstrates its worldwide influence. According to experts, Bitcoin may also serve as a better option than equities since it sidesteps many of the political and economic risks accompanied by the stock market.

Furthermore, one of the best reasons why you should buy Bitcoin before you witness times of turmoil is because Bitcoin's supply is fixed at 21 million coins, nearly 19 million of which have already been mined. This makes Bitcoin extremely valuable, in times of crisis.

Bottom Line

Even if things are not looking so great for the BTC economy right now, investors and analysts are quite optimistic about its future prospects. In fact, even after its massive volatility, there are several investors and BTC fanatics who believe that Bitcoin will once again reign as the all-powerful king of the crypto market, and yield substantial amounts of profits for its investors.