Bitcoin’s reputed founder Satoshi Nakamoto anticipated such an event as this – unbridled money printing by central banks that would debase the value of all pre-existing units of currency. The US just announced its highest consumer inflation in over 30 years: 6.2%.
“Around 36% of all US dollars in existence were printed between January 2020 and now,” says Brett Hope Robertson, investment analyst at crypto investment platform Revix. “This means that if you didn’t take your money and invest it in a rate that beat around 19% a year – then your wealth in terms of what you could afford yesterday versus today technically shrank.”
Because Bitcoin (BTC) will never have more than 21 million coins in circulation, it is incapable of being inflated beyond this hard cap.
In other words, Nakamoto developed BTC as a cure for inflation. By any measure, BTC has been the “inflation killer” it always promised to be.
Take a look at the following graph, which shows what happened to a R1-million house purchased a decade ago in both rands and BTC.
That same R1 million house, indexed to house price inflation, would be worth just under R1.5 million today.
A decade ago, you would have paid 1 517 BTC for that R1 million house. Today, you would be paying around 1.5 BTC for the R1.5 million house.
“This shows the deflationary power of BTC,” says Hope Robertson. “Due to the built-in halving of the BTC inflation rate and the hard cap in supply, we can see how hard assets outperform fiat currencies in times of inflation.”
Hope Robertson (BHR) explains the relationship between inflation and crypto prices.
How does inflation and money printing affect the markets?
BHR: Bitcoin was born out of the 2008 financial crash when Satoshi Nakamoto set out to solve what he saw as a critical flaw in the existing financial system that had resulted in so many people being left destitute. Where you have central banks able to inflate money supply almost without restriction, you are going to get boom and bust cycles. Bitcoin was designed as the cure to all that. You cannot inflate the supply of BTC beyond 21 million coins. The evidence of its workability is everywhere around us.
Measured in fiat currency, BTC has gone up roughly 200% a year, compounded for a decade. Of course, as more and more people adopt BTC, that drives the price up, but so too does the underlying economic situation of ongoing fiat money printing. This printing drives many people across the world to convert their cash into assets that protect their wealth against inflation – BTC is seen as one of those assets.
The following table shows how Bitcoin and Revix’s Top 10 Bundle, which spreads your investment equally over the top 10 cryptos as measured by market cap, have performed compared to more traditional inflation hedges. Could it really be a safer bet than the old stalwarts gold, housing, or even shares?
Not that the graph above needs much explaining, but the answer is a resounding yes.
Cryptocurrencies definitely outperformed the traditional inflation hedges, with the Revix Top 10 bundle (+1 667%) and Bitcoin (+900%) beating the likes of the S&P 500 (+85%), the US Housing Index (25%) and gold (+18%).
And the following chart shows how inflation destroys wealth over time.
What impact has money printing and inflation had on the crypto market?
BHR: It has had an extremely positive effect on the crypto market. Consider that BTC is up around 250% in the last year alone and Ethereum (ETH) nearly 900%.
The graphic above shows just how bad this inflation is. In the US, interest earned on money in a savings account (0.3%) will barely cover 1/20th of the increased cost of living (6.2%) that the average American is experiencing. Put another way – your money allows you to buy around 5.9% less than it did a year ago.
With the newfound hype around inflation and monetary printing, many investors are looking to the cryptocurrency space for yield.
By looking into this space out of necessity, we are seeing that investors are starting to see that this asset class isn’t just purely speculative, but has real-world use cases for tomorrow.
For example, the Ethereum blockchain hosts a vast and growing number of applications that generate fees for the miners and the developers. It’s become a big business.
The same is true of other cryptocurrencies built around smart contracts, like Solana (SOL), Polkadot (DOT), Chainlink (LINK) and Cardano (ADA). Smart contracts are self-executing contracts, really pieces of software code, that require no human agency. So you can lend, borrow, earn interest, purchase financial products – all using smart contracts.
Bitcoin is in a somewhat different category since its business case is built around being a digital store of value.
These are all prominent features in building the world of tomorrow – a digital world.
Do cryptocurrencies have inflation?
BHR: Good question. Yes, many cryptocurrencies do have inflation. As previously mentioned, Bitcoin has a hard cap of a 21 million coin supply. BTC also halves the amount of BTC rewarded to miners every four years in an event called the ‘halving’. This means that the inflation rate of BTC effectively gets halved every four years. BTC’s current inflation rate is around 1.85%.
Ethereum, however, does not have a hard cap, but it has a fixed issuance schedule. With recent upgrades (EIP 1559), Ethereum has actually started to burn ETH with every transaction, and with this, the network has actually turned deflationary for the first time ever.
Solana had an initial inflation rate of 8% but is seeking to reduce this to 1.5% a year over time. Similarly, other cryptocurrencies have various levels of inflation built into them.
Can we consider crypto investments an inflation hedge?
BHR: Yes. Of course, you must make sure that the cryptoasset you are looking at for inflationary protection actually has an inflation schedule and lends itself to having a low inflation rate or is on the road to becoming deflationary.
The evidence is that some cryptocurrencies have done a far better job of protecting your wealth against the ravages of inflation than most other asset classes. That’s not to say they are not volatile and prone to deliver some resounding shocks from time to time.
Revix’s Top 10 Bundle, which spreads your investment over the top 10 cryptocurrencies as measured by market cap, is up more than 620% over 12 months.
Our Smart Contract Bundle, which spreads your investment over the leading smart contract-focused cryptos, is up more than 730% over one year.
So too with the Payment Bundle, which focuses on those cryptos being used as a means of payment. It is up more than 300% over one year.
The evidence is clear that some exposure to cryptos will give you a measure of protection against inflation over the long term.
Revix – zero purchase fees on Revix bundles
Choosing which crypto technologies to back requires a time commitment that most working people simply can’t afford though.
That’s why Revix, a crypto investment platform based in Cape Town, created its crypto bundle offerings. Revix’s bundles allow investors to instantly purchase a diversified portfolio of the top cryptoassets by market cap.
There’s no easier way to use crypto to hedge against inflation while getting involved in the future of the world’s financial systems.
Revix is backed by JSE-listed Sabvest and offers access to all of the individual cryptocurrencies and bundles mentioned in this article.
Revix brings simplicity, trust and great customer service to investing. Their easy to use online platform enables anyone to securely own the world’s top investments in just a few clicks.
Revix guides new clients through the sign-up process to their first deposit and first investment. Once set up, most customers manage their own portfolio but can access support from the Revix team at any time.
For more information, please visit www.revix.com
This article is intended for informational purposes only. The views expressed are not and should not be construed as investment advice or recommendations. This article is not an offer, nor the solicitation of an offer, to buy or sell any of the assets or securities mentioned herein. You should not invest more than you can afford to lose, and before investing, please take into consideration your level of experience, investment objectives and seek independent financial advice if necessary.
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