Inflation in the U.S. Skyrockets to 7%, So Deploy Bitcoin as a Hedge

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In Brief
  • Since the start of 2020, Bitcoin has appreciated in value by over 700% and has acted as an effective hedge against inflation

  • People are seeking new ways to invest their money and protect the wealth they have already accumulated

  • One of the biggest opportunities in this lifetime is generating high-yield passive income with cryptocurrencies

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Inflation: Everywhere you go to shop, prices continue to rise, from groceries to housing, to electricity and more. 

After a record breaking 7.1% year-on-year rise in CPI, the highest for the first time since 1982, American households may begin to ask themselves how they can protect and even grow their hard-earned money against rising inflation.

Rampant inflation isn’t just happening in the U.S., but it’s also occurring in Europe and different parts of Asia and Latin America as the world continues to navigate through the global pandemic. 

But until the world moves on from this inflationary period, people are seeking new ways to invest their money and protect the wealth they have already accumulated. 

Since the start of 2020, Bitcoin has appreciated in value by over 700% and has acted as an effective hedge against inflation. Let’s explore the reasons why Bitcoin may be a good solution for you to hedge against inflation and even grow your wealth over time. 

Inflation hedge: A fixed supply of Bitcoin means printing dollars can not devalue it 

The theory behind Bitcoin as an inflation hedge is simple. The number of Bitcoins is limited to 21 million. This is while the number of U.S. dollars and other fiat currencies continue to increase over time. In theory, this limited supply should mean that Bitcoin is a good hedge against the increased supply of the U.S. dollar.

If you are worried about not being able to purchase a full Bitcoin, the cryptocurrency is divisible by 1 million and it is quite easy to purchase a fractional amount of Bitcoin. 

Keep in mind that Bitcoin is also extremely volatile, which could affect its potential as an inflation hedge. But in the long-term, as more dollars, euros and othe fiat currencies are created, Bitcoin, the internet’s digital gold, will be ready to hedge against long term inflation rates.

Governments are now accepting bitcoin as legal tender

On September 7th 2021, El Salvador became the first country to adopt Bitcoin as legal tender. In the U.S, regulators have said that they won’t ban cryptocurrencies. So, many cities across the country are trying to become Bitcoin hubs, such as New York and Miami

Other emerging countries are also looking at incorporating bitcoin and other cryptocurrencies into their financial system. The city of Rio is looking to provide a 10% discount on taxes when paid in Bitcoin, after studying the possible legal framework. In the Middle East, The Central Bank of Iran, or CBI, and the Ministry of Trade have reached an agreement to link the CBI’s payment platform to a trade system allowing businesses to settle payments using cryptocurrencies.

This is just the beginning of governments adopting bitcoin as legal tender. As more governments attempt to hedge against inflation, we will see more countries embracing Bitcoin. This all means that the price of bitcoin over time should in theory increase, making it a great hedge against inflation over the long-term. 

Inflation hedge: Generate income with cryptocurrency 

One of the biggest opportunities in this lifetime is generating high-yield passive income with cryptocurrencies. This means that you don’t have to just hold on to your Bitcoin and wait for it to appreciate. But you can also earn interest on your digital gold – even over 2.5% a year. 

Today HODLers, or people who simply hold crypto, are turning to cryptocurrency savings accounts as they pay high interest on their Bitcoin and other digital assets. The interest rates on bank deposits are almost negligible — often below 0.5% — when compared to the likes of a crypto savings account — up to 12% annual percentage yield (APY).

When researching crypto platforms to work with, you should look for three main aspects, lending policy, safety standards and reputation. 

Concerning reputation, I mean that the company is compliant and obeys the laws of the land. It also means that the company takes risk management and the protection of their customers’ assets very seriously. 

Select a cryptocurrency savings platform that takes a security-first approach. They should employ Fireblock’s multi-party computation wallet infrastructure to secure funds. And, have all customers’ digital assets insured. 

inflation

Lending policy

Lending policy should also be of great concern and should be very selective with its capital requirement and lend to entities with good credit scores with a loan-to-value ratio of its loans to around 70%. This reduces the risk of default. 

The bottom line is that although Bitcoin is a volatile asset, it can help consumers hedge against inflation by simply being a deflationary currency and by helping them generate high-yield passive income. 

Another option is to use stable coins to generate income. Stable coins are tied to the USD. This makes them significantly less volatile than Bitcoin and Ethereum. You can deposit stable coins in floating and fixed cryptocurrency savings accounts, allowing you to generate high yields with little volatility

Now that is how you stay ahead of the curve



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Raymond Hsu is the Co-Founder and Chief Executive Office for Cabital, a leading cryptocurrency wealth management platform. Raymond’s mission is to help empower people from all walks of life to generate high-yield passive income from their digital assets and create a more sustainable financial industry. Prior to co-founding Cabital in 2020, Raymond worked for fintech and traditional banking institutions, including Citibank, Standard Chartered Bank, eBay, and Airwallex.

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