What to Expect from Crypto During Inflation
At Coinmetro, we are actively working to bring together a global community focused on uplifting change and accessible markets. This is easy to do when things are good, but what about when challenges arise?
One recent question that has shed a light on the global community is how to navigate the issue of inflation. Let’s break down how inflation is impacting our world, the financial markets and crypto, and learn from the past so we can successfully navigate the future together.
The Issue of Inflation (and Other Financial Challenges)
There’s no question that the world is facing a lot of different challenges at the moment. Most of them are directly related to the economy, like the ongoing struggle with supply chains kick-started by the pandemic.
Other issues, like turmoil and political instability in some parts of the world, have impacted fuel prices and stoked fears about further problems with everything from food shortages to the continued lack of computer chips.
All of these ongoing crises (and in some part, the responses to them) are having an impact on the economic and financial stability of countries around the world. One of the key indicators of the threat? Inflation.
Inflation rose to over 8% for the 12 months preceding July 2022. The ongoing and unresolved nature of many of the concerns mentioned above also means the threat of inflation isn’t going away overnight.
Even if the powers that be handle things to the best of their ability, we’ve got a long road ahead of us. What can we expect from the already volatile cryptocurrency markets as the world responds to the growing threat of inflation?
How Does Cryptocurrency Respond to Inflation?
Let’s first consider how investors can use current information to react in a Bear Market. Because prices across the board are down, savvy investors — especially those considering long-term investments — can look at Bitcoin’s charts as an example of how crypto is expected to respond to volatility. Over the last 10 years, we’ve seen Bitcoin, and other crypto products, gain traction despite the shifts in the financial markets.
Financial professor at the University of Central Florida, Eshwar Venugopal, points out (via Quartz) part of the issue that could undermine crypto’s ability to be a reliable hedge against inflation — in the same manner as other limited commodities, like gold — is the way investors approach it in the first place. Naturally, when the going gets tough in the market (as in the case of inflation), some people tend to pull their investments.
While this reaction creates much of the volatility, it doesn’t undermine the idea that Bitcoin and other cryptos — especially those with limited supply — can be a hedge against inflation. Consider that some big banks, such as Citibank, Morgan Stanley, JP Morgan Chase and Goldman Sachs, have already acquired positions in crypto.
What does this mean? In a Bear Market, smart investors look for positions of profit through the market swings. They look to buy assets at a favorable price that would benefit them in the long run.
The experts at Ally Financial point out the need to set clear performance goals for Bitcoin or other cryptocurrencies kept specifically as a hedge against inflation. In other words, if you want to invest in Bitcoin (which is still a very valid option in a market where everything is struggling), make sure to set boundaries for yourself.
“Historically, Bitcoin and the crypto market at large, have seen a lot of correlation with equities. But while equities tend to do worse in times of inflation, because people are now able to move funds out of risk assets and into savings accounts because of increasing interest rates, we are seeing inflation at record highs, therefore savings rates are still not enough to battle inflation. And historically, neither are equities. This means people need to look for alternatives. But there aren’t too many out there. Gold has been throughout time an asset that people look for in storing value. However, when looking at the historic returns of Bitcoin and crypto we see a pattern that no other asset class in the world can compete with. As we get into a period of “stagflation” I believe this is going to push more and more money into crypto, given the fact that there really isn’t any other asset class that can compete in the long run with its potential profitability and, when it comes to Bitcoin, with its use as a store of value.”
Kevin Murcko – Coinmetro, CEO & Founder
Diversification and Responsible Investing
Our mission at Coinmetro is to help every investor navigate instability and uncertainty. In the blurry landscape of modern cryptocurrency investing, we strive to educate and equip you with the community-focused tools to succeed as an investor.
Things may seem bleak at the moment but with long-term optics, there may have been few better opportunities to start investing in crypto. Consider treating each investment as a way to diversify. Don’t put all your eggs in one basket. Be patient and stay in the loop with us here at Coinmetro.