Inflationary winds around the world mark sea change for Bitcoin

[ad_1]

Is the global economy now in uncharted territory against Bitcoin (BTC) and inflation? For most of the cryptocurrency’s short lifespan, the economic environment has been generally favorable for growth with stable prices, but recently new warnings have been issued of an inflationary storm.

If so, what does this mean for Bitcoin, long promoted by supporters as an inflation hedge but not really tested that way since its inception in 2009? In other words, will millions of individuals and institutions flock to BTC as a safe haven, an alternative to gold or the US dollar?

Recent reports, such as the 6.2% rise in the US Consumer Price Index (CPI) in October, a 30-year record, were sobering, although this recent bulge in a single economy national government may have more to do with the continued grunts and hesitations of the supply chain – up post-pandemic consumer demand than any secular shifts in global markets.

Yes he [i.e., inflation] is potentially a problem, Mauro Guilln, dean of Judge Business School at Cambridge University, told Cointelegraph. But, much of the inflation danger is related to consumer expectations for the future. If they believe that the continued rise in prices is a lasting reality, they will buy items as soon as possible, anticipating higher prices.

The fact that U.S. consumers are delaying buying big ticket items due to inflation suggests they think inflation will come down, Guilln said, adding: I’m cautiously optimistic this is temporary.

Others are not so optimistic. It is now clear that inflation is less transient than initially hoped, Wharton School finance professor Itay Goldstein told Cointelegraph. The world is grappling with supply-demand imbalances in the wake of the pandemic, and COVID-19-related monetary and fiscal stimulus are also reflected in recent inflation reports, but it appears that inflation has set in deeper and will take longer to subside, he says. .

A global phenomenon?

Inflation has accelerated, and not just in the United States, Marc Chandler, managing director of Bannockburn Global Forex, told Cointelegraph. Last week, we also learned that China’s CPI fell from 0.7% year-on-year to 1.5%. Will it last? It is not clear at this point. What we do know is that the price pressures have not peaked and may not peak until much of next year.

But what if global inflation worsens dramatically? So i would expect [crypto] that adoption by buyers and sellers is really skyrocketing, Leonard Kostovetsky, assistant professor at the Carroll School of Management at Boston College, told Cointelegraph, adding that this was not the most likely outcome:

I don’t see this happening in the foreseeable future. I am assuming that inflation will be brought under control fairly quickly over the next four years, perhaps as the pressure increases on policy makers to bring it under control.

Bitcoin has recently received a price hike since the launch of the very first US Bitcoin futures ETF, but it now appears to be fueled by the sustained inflation we are seeing in all of the major economies around the world, Sui Chung, CEO of CF Benchmarks , an administrator of the cryptocurrency benchmarks, said Bloomberg.

Bitcoin, of course, has a fixed supply cap of 21 million BTC. By comparison, the US dollar is elastic, and the growth of the M1 monetary stock in the United States has more than quintupled over the past five years: from $ 1,378 trillion in September 2016 to $ 7,245 trillion in September 2021 (426 %), according to Data from the Federal Reserve Bank of Saint-Louis.

It is true that part of the appeal of cryptocurrencies like Bitcoin stems from the fear of fiat currency inflation, Goldstein said. I suspect that inflationary pressure will help the prices of Bitcoin and other cryptocurrencies as well.

But, the fixed cap on BTC may not make such a difference, others say. The price of Bitcoin is determined by demand, Guilln said. If people think it’s a good store of value, then they’ll buy BTC, which seems to be the case now, he said. But I wonder what will happen when interest rates go up and people realize that a treasury bill will pay good interest, and that’s so sure.

I think that old saw on the limited supply needs to be unboxed, Chandler said. We can talk about the monetary link now after the 40% rally in October, but what happened to monetary rule in the second quarter when BTC rose from $ 58,900 to $ 34,500.

Bitcoin’s limited supply may not even give it an edge over other cryptocurrencies. Kostovetsky doubted that the capped circulation of Bitcoins would give him a big advantage over Ether (ETH) as a safe haven, for example. The main advantage of crypto as an inflation hedge would be that there are procurement rules that cannot be manipulated by humans. Savers would not have to worry about some [i.e., politically motivated] increase in supply that would reduce the value of their savings, he said.

Greater impact in the developing world?

Much of the recent inflation talk has focused on the United States, but China also appears to be feeling some effects. The country’s producer price index climbed 13.5% in October (year-on-year), after rising 10.7% in September. This raises further questions: Will global inflation hit the developing world harder than the developed world, and if so, will poorer countries be more likely to adopt Bitcoin as inflation hedge?

I see low-income people and countries suffering from the impact of inflation, Chandler said, especially those with weak banking systems and the number of unbanked households. Before they can profit from Bitcoin or other cryptocurrencies, however, they may need to have, at a minimum, cell phones and some level of financial literacy.

Bitcoin is proving to be a viable alternative to other more traditional inflation hedges like gold, Dan Gunsberg, CEO of HXRO Network told Cointelegraph, adding that poorer countries would continue to adopt Bitcoin as a hedge. against inflation. That said, while investors may flock to Bitcoin as a safe haven, it is still widely viewed as a risky asset and tends to correlate with other speculative assets like stocks, he added. Guilln was less alarmed on the inflation front:

So far, emerging markets and developing countries have not experienced higher inflation rates than the United States. The dollar will remain strong. I don’t think we’ll see high global inflation.

Entering uncharted waters?

Overall, we are in uncharted territory, Kostovetsky said. No one really knows if inflation will be severe and widespread or mild and localized, while Gunsberg added that we have been in uncharted territory for inflation for longer than has been publicly disclosed, which has been reflected in the price of Bitcoin, as well as other financial assets over the past 12-18 months.

Related: Are Institutional Investors The Key Silent Partners In Crypto?

Still, if inflation rises sharply, while cryptocurrencies manage to become less volatile two big though, it is true that people have the potential to keep their savings in crypto, Kostovetsky told Cointelegraph, which would mark in effect a big change.

[ad_2]