How does Bitcoin (BTC) protect against inflation?

The bear market we are currently experiencing has been shaking the confidence (and portfolios) of a large portion of investors for some time. The latter, in particular, saw bitcoin as the asset of choice for significant returns on the one hand. On the other hand, bitcoin is a concrete alternative to potential currency crises due to its past performance. This is to quickly forget the concept of a time horizon and the main mission of bitcoin: through very low inflation ideal counterforce for long term about the current broad inflation-driven monetary policy that devalues ​​fiat currencies. Thus, if the convictions of these investors remain intact, speculative short-term fluctuations in the price of bitcoin will not defeat the true stable value of bitcoin, justifying its fundamental mission. Bitcoin therefore represents a concrete strategy against the devaluation of the currency by the current monetary policy.

What is inflation?

Definition ” economic Inflation is characterized by an increase in the amount of money in circulation. It remains necessary if controlled: if inflation is too high, especially if wages do not keep pace with this inflation, it hurts the economy. Definition ” became popular » currently uncontrolled inflation is expressed by loss of purchasing power, and this is for a simple reason: the money supply increases by printing money in the form of debt, which mechanically reduces the value of the currency in question. . For example. One euro in 2020 was equal to 1.4 euros in 2000. This inflation exploded during the covid crisis in 2021 and reached peaks not seen in 40 years. This increase in inflation serves bitcoin, which will paradoxically become portfolio insurance.

Bitcoin as a hedge against inflation

If we make the arguments of detractors of bitcoin as a hedge against inflation, the arguments of the frequent and spectacular drops in the price of bitcoin in a bear market inevitably come to the fore: why hedge against inflation with an asset that can lose? % of the value of 75 from one?

But this short-term view prevents us from stepping back and realizing the potential of this technological revolution. On the one hand, it is worth considering the rate of mass adoption, which has steadily increased exponentially over the past 13 years. Indeed, the number of current cryptocurrency users (about 300 million) equals the number of Internet users in 1998, if we compare the two major disruptive technologies very favorably. The first property that allows bitcoin to be classified as an inflation hedge therefore applies increase in demand.

Bitcoin as a store of value

On the other hand, as we all know, central banks released huge amounts of money to bail out banks, especially those affected by the crises of 2008 (financial crisis) and 2020 (covid crisis). absolutely unlimited way.. Indeed, since 1971 and the end of Richard Nixon’s Bretton Woods agreements in 1971, nations have been able to create almost unlimited debt.

Bitcoin, on the other hand, represents the opposite of central banks’ inflationary policies. In addition to being a payment network and a complete monetary system, bitcoin is governed by the operation of its protocol, which is analogous to gold: it represents a resource and therefore an asset limited to 21 million units. shortage of suppliesnaturally the second most important element in the properties attributed to the store of value.

Bitcoin currency inflation since its inception
Monetary inflation bitcoin since its inception

Indeed, bull and bear cycles punctuated by halving cycles (miner wages are halved every 210,000 blocks, roughly every 4 years) indicate long-term programmed supply shortages. This controlled bitcoin inflation is immutable.

If we include bitcoin’s proven social benefit, operational efficiency, growth potential associated with its small share of the global money market, and valuation since 2009 (an average price increase of 20% per year), bitcoin is becoming less and less associated with the stock market and more real. considered a safe haven.

The result

Bitcoin is certainly a technological promise that will, among other things, enable the inclusion of the 90% of people who are unbanked, discriminated against or living in a country whose local currency is subject to disproportionate inflation. But it essentially has the potential to become this store of value on a global scale, thanks to tight supply and growing demand, and a monetary standard like gold before the Bretton Woods agreements ended. the end of the conversion of the dollar to gold. Bitcoin will be an investment alternative thanks to its protection against inflation (bitcoin is the most profitable asset during its 13-year existence) and, above all, a protector that will allow us to restore some lost stability. Since 1971. , institutions are not wrong: they have massively invested in bitcoin, e.g BlackRock and JP Morgan.

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Soumaya DAHMANI avatar
DAHMANI to Soumaya

Being a fan of new technologies and innovations, my goal is to use the knowledge I gained during my training to specialize in future sectors of cryptocurrency and metaverse. I strive to use my knowledge of blockchain to provide quality content accessible to everyone!

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