FOREX NEWS

HOMEFOREX NEWS

21-05-2022|Crypto

What Impact Does Inflation Have on Cryptocurrencies such as Bitcoin and Ethereum?

  • Bitcoin and other cryptocurrencies have long been touted as great inflation hedges.
  • However, throughout the majority of this year, USD's purchasing power against BTC has been on the rise.
  • Socio-political problems have played a crucial part in determining BTC's price trend over the last two quarters, despite mainly unfavourable market conditions.

Cryptocurrencies are appealing as investments for a variety of reasons. For some, cryptocurrencies are a quick method to get money while chanting "wen Lambo," while for others, it's a belief in blockchain technology or a specific project. Because of FOMO, getting into cryptos might be as simple as jumping on the hype train.

Apart from that, cryptocurrencies such as Bitcoin have been hailed as effective inflation hedges and value stores. So, where do cryptocurrencies and inflation collide as inflation continues to rise?

What is inflation?

Inflation occurs when the value of a currency, such as the US dollar, falls over time, raising the price of goods and services and aiding economic growth. Cryptocurrencies, unlike fiat currencies, can't be manipulated as much by shifting interest rates, according to the experts.

Bitcoin (BTC) and ether (ETH) rose in early May when the Federal Reserve raised interest rates, climbing 3.5 percent and 1.2 percent, respectively. One of the main causes of broad losses in the crypto markets has been rising inflation. The Federal Reserve of the United States raised interest rates by 0.5 percent, the largest rate increase in the last two decades.

While cryptocurrencies experienced short-term price surges in response to the news of the interest rate hike, the gains were not sustained. Many analysts, on the other hand, continue to believe that cryptocurrencies have been acting like stocks, akin to a large tech stock.

Bitcoin – an inflation hedge?

USD's purchasing power against BTC declined even more in the post-pandemic era, with a major drop in March 2020, followed by another drop towards the end of 2020, as shown above. The dollar's value has also fallen as a result of the government's ongoing money printing.

Inflation has already reduced the value of the USD by 85 percent over the last 50 years, bolstering BTC's narrative as an excellent alternative to fiat money. However, after reaching an all-time high of $69,000 in November 2021, bitcoin's price began to fall. Around the same time, USD purchasing power versus BTC began to rise, peaking in November-end 2021 and then falling again in March 2022.

Notably, the USD's purchasing power against BTC has been rising for the majority of the year. The same is true for bitcoin's inflation hedge narrative. Furthermore, the ongoing issues surrounding market volatility and the high price of a single BTC unit cause friction for investors, particularly newcomers.

While investment options such as bitcoin mining-backed ETFs and BTC ETPs have provided decent exposure to a wide range of investors, the market's continual volatility continues to plague BTC traders, investors, and novices.

BTC prices haven't reacted badly to policy uncertainty shocks over the majority of bitcoin's history, which is partly consistent with the notion of Bitcoin's independence from political authority. However, in the face of predominantly unfavourable market conditions, socio-political factors have played a significant influence in determining BTC's price trajectory over the last two quarters.

Furthermore, as the market matures, BTC's increased correlation with the two major indices—the S&P 500 and the Nasdaq—could play a spoilsport in the coin's inflation hedge story.

Bitcoin's price fell down 57.02 percent from its all-time high of $69,000, putting the top coin's story as a store of value in jeopardy. BTC was trading at $29,504.67 at the time of writing, close to the $30,000 psychological support/resistance mark.

The coin has been stuck in a range between $31,500 and $28,380 mark since May 10.

For the time being, with the bigger market leaning bearish, whether BTC can outperform traditional assets and fiat currencies remains an open question. Many observers believe that the maturing bitcoin and cryptocurrency markets have resulted in declining returns over time.

For the time being, with the bigger market leaning bearish, whether BTC can outperform traditional assets and fiat currencies remains an open question. Many observers believe that the maturing bitcoin and cryptocurrency markets have resulted in declining returns over time.

Leave a Comment :


Cancel
  • We introduce people to the world of currency trading, and provide educational content to help them learn how to become profitable traders. We're also a community of traders that support each other on our daily trading journey.

Other Links

Learn Forex Trading

Corporate Address

  • 8210 Desoto Dr, West Chester, OH - 45069, USA
  • (513) 968-7209
  • support@drforexofficial.com
Trustpilot

Trading CFDs on leverage involves significant risk of loss to your capital.

Any opinions, chats, messages, news, research, analyses, prices, or other information contained on this Website are provided as general market information for educational and entertainment purposes only, and do not constitute investment advice. The Website should not be relied upon as a substitute for extensive independent market research before making your actual trading decisions. Opinions, market data, recommendations or any other content is subject to change at any time without notice. DrForexOfficial, will not accept liability for any loss or damage, including without limitation any loss of profit, which may arise directly or indirectly from use of or reliance on such information.

The information on this site and the products and services offered are not intended for distribution to any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation. Read our full legal disclaimer.

© 2020-2024 All Right Reserved. DrForexOfficial

We will provide you latest market updates and analysis, for that you can JOIN OUR TELEGRAM CHANNEL and get daily profit and more facilities. If you want to JOIN TELEGRAM CHANNEL, click here to join.