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Inflation Is Hurting Consumers — Cryptocurrencies Offer a Solution

6 mins
Updated by Leila Stein
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In Brief

  • Rising prices are expected to persist, especially in the United States.
  • There are ways for you to hedge against inflation, beyond the traditional mechanisms.
  • There’s a new and exciting way to hedge against inflation. You can buy and hold cryptocurrencies.
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Hedging against inflation has become a hot topic. Especially as the U.S. currently undergoes serious inflation woes. Cryptocurrency is proving its worth when it comes to avoiding losses.

As the holiday season approaches, low temperatures across the U.S. mean increased heating costs. 35% of American households reported that the hardship they are undergoing is bearable.

However, 45% reported that inflation is causing their family some kind of financial difficulty. 10% reported that they are experiencing severe hardship. So severe, it is impacting their standard of living.

This appears to be the beginning of what Americans will experience in the future. Rising prices are expected to persist. The most vulnerable are likely to see things worsen before the situation improves.

This is because the U.S. recorded an inflation rate of 6.2% in October. This is the biggest 12-month jump since 1990. Sadly, an American ten-dollar bill can’t purchase the same amount of goods and services today as it did even a year ago.

Passing on inflation to consumers

Warren Buffet is the CEO of Berkshire Hathaway. At his company’s annual shareholder meeting, he said that he is “seeing substantial inflation.” I believe he is spot on with this statement. Corporations are passing inflation to consumers.

The average American will have to find ways to hedge against inflation as the Federal Reserve continues printing dollars. Proctor & Gamble recently said it would hike prices on baby care, feminine care, and adult incontinence products in the U.S.

Whirlpool CFO Jim Peters recently told Yahoo Finance Live the appliance maker just increased prices. They are rising by 5% to 12% for its products to counteract rising steel costs.

Kleenex maker Kimberly-Clark said it will increase prices in North America on the majority of its consumer products. This is due to “significant” commodity cost inflation. The list goes on and on. It really doesn’t seem fair, does it?

Hedging against inflation

The good news is that there are ways for you to hedge against inflation and even make a profit while doing so. How can you hedge against unchecked inflation?

New research from Vanguard suggests that investing in commodities is one of the most powerful ways to hedge against unchecked inflation. This is using a concept known as inflation beta – an asset’s predicted reaction to a unit of inflation.

Vanguard found that commodities rose between 7%-9% for every 1% of unexpected inflation the economy experienced over the last decade.

One of the most popular commodities that have been used to hedge against inflation is gold. But gold is not the best inflation hedge. Gold sometimes keeps up with inflation.

However, there are periods in history where its price moved out of sync with inflation. This can be seen between 1980 and 1984 where gold lost 8.3% of its value per year. All the while, inflation averaged 7.5% per year.

Hedging with real estate

Investing in real estate is another way to hedge against inflation. This is because property values tend to stay on a steady upward curve over time.

In less than a decade, most of the houses that bottomed out in the real estate bubble in 2008 returned to their pre-crash prices. Properties can also provide recurring income for investors. In addition, they can keep pace and even exceed inflation in terms of appreciation in certain circumstances.

There are problems with real estate. It can be difficult to select the location to invest in, as it typically requires expertise on a local level.

It can also be stressful in finding and managing tenets. What do you do if they don’t pay? How will you advertise your property? What do you do when someone tears it up, and the deposit doesn’t cover the cost?

Although investing in real estate can be a good investment as a hedge against inflation, it comes with its own set of problems.

Hedging with cryptocurrencies

There’s a new and exciting way to hedge against inflation. You can buy and hold cryptocurrencies, especially ones with maximum supply limits, such as bitcoin. It is passive and easy to do.

With bitcoin, there is a significant advantage over other digital currencies and even fiat ones such as the U.S. dollar. It is said to be a great hedge against inflation over time. That is because there’s a finite supply of bitcoins – 21 million. Billionaire investor Carl Icahn has endorsed BTC as a hedge against inflation.

Staking or depositing crypto

Depositing or staking your crypto in a crypto savings platform for a fixed period of time is also a lucrative method to generate income from your crypto.

Staking is similar to taking your money and putting it in a timed deposit, an interest-bearing bank account that has a pre-set date of maturity. Time deposits generally pay a slightly higher rate of interest than a regular savings account. The longer the time to maturity, the higher the interest payment will be. Staking and depositing crypto is about the same.

According to a report by JPMorgan, staking today generates an estimated $9 billion worth of revenue annually for the crypto industry.

The analysts also believe that Ethereum’s shift to proof-of-stake after the complete rollout of Ethereum 2.0 next year will accelerate the adoption of decentralized finance. This could result in staking pay-outs to explode to $20 billion in years following the launch of Ethereum 2.0 and $40 billion by 2025.

Depositing and staking your crypto is a very easy thing to do and helps you build passive income over time. You can be hedging against inflation and not even worry about it while it is locked in a crypto savings account.

It is simple, easy, and secure. Some crypto savings platforms can allow users to generate up to 12% a year on their U.S. Dollar Tether (USDT). Compare that to your interest on your savings account with your bank.

How to select a crypto savings platform

Staking and depositing cryptocurrencies such as bitcoin, ethereum, and USDT can help you hedge against inflation and even help you earn more crypto. However, how do you select a safe, compliant, and secure cryptocurrency platform?

Always look for hidden fees as they are almost always there if you look hard enough. If you have traditional savings account with a bank, you can withdraw all your money and close your account whenever you please – typically with no fees.

But this isn’t the case with many cryptocurrency savings accounts. For example, some crypto savings accounts have withdrawal limits that cap the amount you can take from your account over a period of time.

These withdrawal limits can put your money out of reach. You may need it on the spot, such as during an emergency or being laid-off from work.

In addition, many crypto savings platforms make their customers pay fees when they withdraw their money. These fees can add up quickly if you are an active investor who makes a lot of transfers and transactions each day. So always read the fine print when you are seeking a place to deposit your cryptocurrency.  

Crypto compliance

There are crypto savings platforms that allow you to earn income from your crypto that does not have any hidden fees. These are platforms that are worth looking into in more depth.

Are they compliant? U.S regulators are more focused on regulating its cryptocurrency industry than ever before.

Authorities in the U.S. government have said that they want to help the fast-growing cryptocurrency industry. But they want crypto firms to follow the law of their land to keep their people safe. Breaking their laws will result in serious fines.

I would make sure that you look at where they are licensed and allowed to operate legally. Keep in mind that the cryptocurrency industry in many parts of the world still doesn’t have clear regulations, but this is changing quickly.

With inflation now at record highs across the U.S. and Europe, depositing your cryptocurrency to earn high-yield interest is a great way to go about hedging against inflation while making a new income stream.   

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Raymond Hsu , Co-Founder and Chief Executive Office for Cabital
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.