Will Inflation Increase Global Bitcoin Adoption?

The Fed Reserve’s decision to impose one of the highest interest rates post-pandemic laid the foundation for inflation at levels unprecedented since 2008. The high inflation brought the global spotlight on cryptocurrencies with traders glued to the performance of what were designed to be inflationary hedges. The stablecoin crash, combined with falling valuations of basically all virtual assets may have detracted investors for the time being. But, global economic and geopolitical conditions will simply lead to the further adoption of cryptocurrencies, particularly Bitcoin. 

Is Bitcoin Good for Asset Diversification in Crypto Bear Markets?

Inflation poses a consistent risk to fiat valuation. This is one of the primary reasons behind investors opting to protect their assets through asset investments. While gold has been the traditional hedge option against inflation, Bitcoin and other cryptocurrencies had been steadily gaining momentum over the past few years. If we consider the year 2021, Bitcoin rose 125% while gold fell 8% on a year-to-date basis. In fact, JP Morgan analysts acknowledged that Bitcoin’s previous year’s rise was mainly driven by a notion that it is better than gold as a hedge against inflation.  

Bitcoin, the first cryptocurrency, still remains the predominant leader in the crypto market share. A notable section of the global industry leaders has been voicing their support for the crypto, which surpassed PayPal in global payment transactions the previous year. The digital asset has also been accepted by multiple nations- some have even moved forward to declare “legal tender” status. Legacy payment processing services like VISA and Mastercard have already started accepting payments in crypto, in addition to multiple global banking corporations.  

Also Read: The Significance of Inflation and the Subsequent Political Impact on Bitcoin Prices

The Russian Equation

The Russian invasion of Ukraine led to the USA, EU, and SWIFT banning the Ruble, along with multiple Russian banks. SWIFT’s decision, in particular, led to a large change in the geopolitical scenario, with multiple factors at play. To start things off, Russia is one of the leading global energy suppliers, and its energy is indispensable for European nations at present. 

China offered its aid to Russia through the CIPS system for cross-border payment settlement. However, the response has been lukewarm at best. Furthermore, Russia asking for its resource export payments to be settled in Ruble puts a challenge to the USD hegemony. All in all, the entire scenario translates to a promising situation for crypto adoption among other nations, particularly those who wish to avoid the crossfire. 

Also Read: Ukraine Unveils NFT Museum To Raise Funds for Relief and Resistance

Falling Bitcoin Valuations

Truth be told, no cryptocurrencies, including Bitcoin, have been totally immune to the effects of inflation. Bitcoin touched an all-time high in November 2021 but is trading at less than half of its then volume, currently at below $30k. The world’s largest crypto is gathering support and resistance across the $30k mark, and market analysts are pretty optimistic about its revival. In fact, several experts are recommending the present Bitcoin valuations to be the best time for buying Bitcoin. The same can however not be said about stablecoins which were supposed to be more stable, being pegged to fiat denominations.  

The Significance of the Inflation for Crypto 

Inflation is the Chance for Cryptos To Prove Their Worth as an Alternative Asset Class
Raj Chowdhury, PayBito CEO.

If long-standing, high fiat inflation will lead to increased digital asset investments, fiat denominations will be losing their valuation. Popular decentralized cryptocurrencies like Bitcoin and Ethereum will be seen as attractive investment options. Withstanding crypto volatility may be an issue, but there are several other factors that will be determining crypto market economics. The noticeable ones include:

a. Bitcoin can not be subjected to government manipulation.
b. Being a digital asset, it is easier to store or transfer Bitcoin in comparison to gold.
c. The Bitcoin blockchain network is secure through the PoW consensus mechanism. There are additional measures in check too. The total number of Bitcoins will forever be capped at 21 million, of which 19 million have already been mined. At present, a new “block” is processed by miners within 10 minutes followed by the addition of 6.25 BTC within the network. The next halving(3.125 BTC mining rewards) will occur in 2024.
d. The time-sensitive tapered Bitcoin supply is programmed, fixed, and predictable.

Wrapping Up

The high volatility of crypto valuations reflects their deficiency in the consistency required to overtake inflation. The present inflation is a direct consequence of the global pandemic with disruption in supply chains and labor force restrictions leading to price hikes. WFH situations also contributed to increased demands. The inflation is persisting longer than the expectations of financial experts. Like cryptocurrencies, traditional inflation hedges such as gold have failed to deliver as well. There is no doubt cryptocurrencies and blockchain will become a mainstay in future transactions. A measured approach is probably what’s best for now, though current market valuations present a great Bitcoin investment opportunity.