Since we welcomed the idea of the new digital age, the context of crypto has become even more exciting for most. Crypto, as an asset of the digital environment, makes it relatively easier to make transactions and manage your funds.
By augmenting the economy, crypto has changed the way we deal with financial matters, as many investors turn to cryptocurrencies to ensure profit. Let’s see how inflation has impacted the current environment for crypto investors.
The Cause of the High Inflation
Inflation is at an all-time high, with the highest CPI of 7.9% last year, and it’s only getting worse due to Covid-19 and the escalated conflict between Russia and Ukraine. However, to remain competitive globally, corporations are cutting margins to protect their sales in an uncertain environment.
When it comes to the crypto sector, these digital assets give investors a potential power that works against excessive inflation, allowing cryptocurrencies to be seen as viable hedging tools, rather than unfeasible traditional assets.
Crypto’s Role in Diversification
As inflation rose, investors were naturally tempted to use safe assets like gold. But when these traditional assets started giving downfalls, crypto ranked as the top new hedge against inflation because cryptocurrencies like Bitcoin and Ethereum have outperformed gold by 130%, whereas gold only rose by 4%. This action drew the attention of investors everywhere, prompting them to consider the attractive prospect of adopting cryptocurrency as an inflation hedge.
Moreover, the world’s largest cryptocurrency, Bitcoin, changed the market as a whole. Free from government conventions, Bitcoin operates on the novel concept of scarcity, limiting the number of available coins to 21 million.
Albeit, in the year 2021, the digital token’s value doubled, the beginning of this year saw a drop of 9%. Still, cryptocurrencies have proven to work as a better hedge against hyperinflation than gold.
Strategies to Help Crypto Investors
Even though Bitcoin has a higher risk compared to gold, investors continue to utilize it as a hedge because of the benefits it provides. Investing is the most consistent way of beating inflation and profiting during downturns when few assets have generated cash flow without causing harm to hedged funds.
But Bitcoin is considered to be attached in a pro-cyclical way to market movements. This means that as the market goes down, Bitcoin tends to fall, creating a sense of doubt about whether it should be used as a pure hedge against inflation or not.
So does it mean there isn’t an ideal strategy for crypto investors?
Fortunately, there seems to be an alternative. Stable coins are here to help as a solution to financial volatility. These stablecoins, like BUSD for example, offer a variety of benefits and distinctive characteristics, with the ability to connect with decentralized services. Where on one side, crypto investors can protect their capital, and on the other, they can readily engage in a straightforward money trading process.
Conclusion
Most consider stablecoins to be more steady and wise investments in the inflation period. And since investing is a critical process, it becomes essential to get into trading cryptos equipped with the right strategies.
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Disclaimer: The content of this article is not investment advice and does not constitute an offer or solicitation to offer or recommendation of any investment product. It is for general purposes only and does not take into account your individual needs, investment objectives and specific financial and fiscal circumstances.
Although the material contained in this article was prepared based on information from public and private sources that IXFI believes to be reliable, no representation, warranty or undertaking, stated or implied, is given as to the accuracy of the information contained herein, and IXFI expressly disclaims any liability for the accuracy and completeness of the information contained in this article.
Investment involves risk; any ideas or strategies discussed herein should therefore not be undertaken by any individual without prior consultation with a financial professional for the purpose of assessing whether the ideas or strategies that are discussed are suitable to you based on your own personal financial and fiscal objectives, needs and risk tolerance. IXFI expressly disclaims any liability or loss incurred by any person who acts on the information, ideas or strategies discussed herein.
