Why Bitcoin Can Save Us From Inflation

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On July 13 at around 8:30 a.m. EDT, the Consumer Price Index (CPI) report for the month of June fell. According to the report, consumer prices rose 5.4% in June 2021 compared to June 2020. This is the largest monthly price increase since August 2008. Real wages have been or have been canceled by these price increases. The cost of the things you use and need every day is increasing. #Inflation is all the rage now. Part of the rise in the CPI figures is due to the massive supply-demand shock that the global economy has experienced over the past year. This makes sense given that the United States doesn’t manufacture much anymore.

I think I should briefly explain what exactly inflation is because CNBC and Bloomberg will lie to you.

We have been taught that inflation is simply the increase in prices. This is a common definition of inflation that you will come across. To some extent, yes, inflation is the constant rise in prices over time, but that is like going to an orthopedic surgeon and saying you have a torn hip labrum. Well how did you rip your hip labrum? We are ignoring the acute cause of inflation which is … drum roll please …

Seriously, the vast majority of America’s money supply is generated digitally through a computer. There is an infinite amount of money in the Federal Reserve. Let me show you a chart that only goes up because of this.

This is a chart of the Federal Reserve’s balance sheet. What is happening here?

The Fed controls the money supply in the United States and buys assets that appear on the balance sheet. In 2006, the balance sheet was just under $ 900 billion. In 2008, during the Great Recession, our balance sheet exceeded $ 2 trillion. As of June 2021, there were approximately $ 8 trillion in assets on the balance sheet. The Federal Reserve has essentially enlarged the balance sheet by a multiple of 10! This has boosted asset prices in all investment vehicles.

The increase in the money supply in an economy determines asset prices as well as consumer prices. Since 2008, assets have appreciated in price. This includes bitcoin as it is currently monetized (as used as currency) by individuals, institutional investors, and even countries like El Salvador. Stocks, especially the S&P 500, hit all-time highs almost every other day.

Image source

Since the March 2020 liquidation, the S&P 500 has gained around 100%. For every dollar you put in that clue, you got $ 2 back. The Fed injected unprecedented amounts of liquidity into financial markets and the consequences have been rising asset prices.

Inflation in government-issued currencies is rampant around the world and has shown only signs of increasing. 35% of all US dollars ever printed by the government were printed between March and December 2020. Dollars melt ice cubes. There is a startling statistic that roughly 47% of Americans have no assets. They are hurt by this feeling of money, eroding their stored value from those who invest.

As I said before, bitcoin is not exempt from the monetary inflation that we are seeing. In fact, he benefited greatly from it. There are, however, key distinctions between bitcoin and all the other assets that I would like to highlight.

It is the most accessible asset ever created since it was designed for a digital world.

The Bitcoin protocol is secured by tens of thousands of nodes spread around the world. Because of this, the network maintains availability and resists any single point of failure. Anyone can participate and secure the bitcoin network.

It is the first existing asset whose supply is strictly limited. No matter how many people join the network, the increase in value, or the advancement of the equipment that operates it, there will never be more than 21 million bitcoins. If someone tries to increase the supply, they will have to go through tens of thousands of full nodes. Due to the strict supply limitation, there is no technical possibility of increasing its supply to meet an increase in demand. In this way, bitcoin acts as a whole new class of asset and can be one of the most effective forms of store of value ever. Bitcoin implements a far more superior monetary policy thanks to the code than central bankers in suits.

Since the inception of government-issued currencies, nations around the world have been plagued by unlimited printing by irresponsible governments. The current system is not designed to be successful, but rather to delay its continued and inevitable destruction.

Let’s do a little math problem:

What is ∞ / 21,000,000?

This is a guest article by Paul Opoku. The opinions expressed are entirely theirs and do not necessarily reflect those of BTC, Inc. or Bitcoin Magazine.

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