Fiat A Bubble, Bitcoin A Safe Refuge in the Age of Inflation
Bad news is that the general cost of
living is on the rise while earning, mostly for those at the base of the
pyramid, are stagnant. A twitter user worryingly notes that the cost of essential
items is up 55 percent and this state of “hyperinflation”, it’s the ordinary
who are bearing the brunt. As inflation and value erosion becomes a normal,
benefits of Bitcoin and similar store of value global digit assets will become
more attractive in days ahead.
Inflation Hits 55 Percent
According to a cryptocurrency
enthusiast and software developer, Lyle Pratt, inflation is up by more than 55 percent. For this reason,
he believes that it is time for plan B, which is the adoption of Bitcoin. The
use of Bitcoin as a store of value could cushion the effect of inflation which
seems to have affected the most important aspects of our lives.
In his display, Pratt indicates that
the cost of education, medical care services, wages, food, and housing are all
on the rise. Meanwhile, the cost of cars, household furniture, clothing,
cellphone services, and others are kept low and affordable.
With the rise in the cost of the
essential aspects of our lives, Pratt’s chart suggests that it is time people
adopt Bitcoin as a store of value. This would help preserve the purchasing
power of their wealth over time.
The inflation of fiat generally
implies that there is an increase in the prices of goods and services while the
purchasing power of that currency reduces. When the price of a product rises
over time, and the quantity and quality remain the same, then it is known as
The increase in the supply of
currency above its real output leads to inflation. This is why economists
believe that printing money causes inflation. When there is more money in circulation,
and the quantity and quality of goods produced don’t change, then there would
be more cash available for people to purchase those goods. By so doing, there
would be more demand for the products which could hike up their prices.
Meanwhile, Bitcoin’s Inflation Rate Could Drop Below 2 Percent Per Year
Ingeniously, Satoshi Nakamoto, the
creator of Bitcoin, designed the cryptocurrency to have a stable inflation rate
similar to Gold. The fact that only 21 million BTCs can be in existence has
made it a scarce asset. As such, the scarcity and high demand would lead to an
increase in Bitcoin price and a subsequent decrease in its inflation rate.
In July last year, Bitcoin’s
inflation rate was just 4.25 percent. It is now expected to drop below the 2
percent mark annually over the coming years as mining gets harder and fewer
coins are created.
But this is nothing new and relative
to previous years, inflation is low. From 1900 to 2018, the inflation rate of
USD stands at 2,900.45 percent. This implies that $100 in 1900 is equivalent to
$3,000 in 2018, signifying a massive rise over the past century.
Because of this, market experts argue that the US Dollars is a bigger bubble than Bitcoin simply because of
the scarcity and mathematics controlling minting. Besides, it’s pretty hard to
pinpoint with laser precision that exact amount of USD in circulation mainly
because money generation is an opaque process unlike Bitcoin’s. Add that to Bitcoin
superiority as a store of value unlike sovereign currencies since it is immune
to local politics, it is easy to see why the coin is viewed as a threat to
In the long run, there is optimism
that people and some banks would turn to Bitcoin as the digital store of value.
Its anti-inflationary feature is key to helping people navigate the
ever-increasing cost of living.