The role of Bitcoin is dependent on the hedge of inflation on the place where one lives – an analyst

For years, inflation was primarily a source of concern for emerging markets, making the volatile currencies and economic instability an increase in continuous prices. However, in the aftermath of the Covid-19s, inflation has become a global issue. The stable economies were historically low historically, suddenly wrestling with high costs, prompting investors to rethink how to maintain their wealth.

While gold and real estate have long been welcomed as safe assets of mitigating, Bitcoin supporters argue that its fixed supplies and decentralized nature make it the final shield against inflation. But does the theory stand up?

The answer may be largely dependent on the place where one lives.

Bitcoin’s advocates of 21 million coins as a major advantage in combating inflationary monetary policies. Unlike the Fiat currencies, which central banks can print in unlimited quantities, bitcoin supply is determined in advance by algorithm, which prevents any form of artificial expansion. They say this scarcity makes bitcoin closer to “digital gold” and a more reliable store with value than traditional funds issued by the government.

Many companies and even sovereign countries adopted the idea, adding Bitcoin to the treasury bonds to hedge from currency risks and inflation. A most prominent example is El Salvador, who publishes the headlines of international newspapers in 2021 by becoming the first country to build Bitcoin as a legal tendency. Since then, the government has been accumulating steadily, making it a major component in its economic strategy. Companies such as the strategy in the United States and Metilantan in Japan followed their example, and now the United States is to create its strategic Bitcoin reserves.

Bitcoin’s investment strategy has resulted so far

So far, the Bitcoin Investment Strategy for Companies and the Government has resulted in the BTC surpassed the S&P 500 indicators and golden contracts since early 2020 before inflation in the United States.

However, recently, this strong performance has shown signs of moderation. Bitcoin is still a strong performer over the past 12 months, and although BTC gains outputs, economists warn that the previous performance is not a guarantee of future results. In fact, some studies indicate a relationship between encrypted currency returns and changes in inflation expectations far from stability over time.

It returns over the past 12 months. Source: trufflation.

The role of Bitcoin is still as uncertain infertility

Unlike traditional inflation hedges such as gold, Bitcoin is still a relatively new asset. Its role is still as uncertain, especially given that the wide adoption has only gained traction in recent years.

Although inflation has increased in recent years, the price of Bitcoin has greatly fluctuated, and is often associated with risk assets such as technology shares more than traditional inflation in excess such as gold.

accident Ticket Posted in Economy and Business Magazine I found that Bitcoin’s ability to inflation was weakened over time, especially with the growth of institutional adoption. In 2022, when inflation in the United States reached a period of 40 years, Bitcoin lost more than 60 % of its value, while gold, the traditional hedge of inflation, remained relatively stable.

For this reason, some analysts say that the price of Bitcoin may be driven by more investor and liquidity conditions compared to the total economic basics such as inflation. When the risk appetite is strong, bitcoin collects. But when the markets are afraid, bitcoin is often disrupted along with stocks.

in Economy and Business Magazine A study, authors Harold Rodriguez and Jefferson Colombo said,

“Based on the monthly data between August 2010 and January 2023, the results indicate that bitcoin revenue increases dramatically after a positive inflationary shock, which confirms experimental evidence that bitcoin can serve as inflation.”

However, they noticed that Bitcoin’s inflationary hedge properties were stronger in the early days when BTC’s institutional adoption was not prevalent. Both researchers agreed to this.[…]The Bitcoin inflation feature is specific to context and is likely to decrease because it achieves wider dependence and becomes more integrated in the prevailing financial markets. “

“Until now, it has been the hedge of inflation-but it is not a black and white condition.” Robert Walden, head of trading in ABRA, told CointeleGraph: “It is more than one league (phenomenon).”

He said, and the two said,

“In order for Bitcoin a real hedge of inflation, you will need to overcome inflation constantly year after year with its revenues. However, due to its equivalent nature, its performance tends to be very asymmetric over time.”

Walden said that the Bitcoin movement is currently related to the market situation more than the hedge of inflation – it relates to capital flows and interest rates. “

Argentina and Turkey are looking for a financial refuge in encryption

In economies with fleeing inflation and strict capital controls, Bitcoin has proven to be a valuable tool for wealth. Argentina and Turkey, two states with continuous inflation in recent decades, show this dynamic well.

Argentina has long wrestled with frequent financial crises and high inflation. While inflation showed signs of improvement recently, the local population has historically turned into an encrypted currency as a way to overcome financial restrictions and protect their wealth from the low value of the currency.

A modern coinbase reconnaissance I found that 87 % of Argentines believe that encryption technology and blocks can enhance their financial independence, while nearly three of every four respondents see that encryption as a solution to challenges such as inflation and high transactions costs.

Related: Argentina outperforms Brazil in encryption flows – series analysis

It has a population of 45 million, Argentina has become a hotbed for the adoption of encryption, as Coinbase has informed that up to five million Argentines use digital assets daily.

“Economic freedom is the cornerstone of prosperity, and we are proud to provide safe, transparent and reliable encryption services to Argentina,” said Fabio Blain, director of the American American Company.

“For many purple, Crypto is not just an investment, it is a need to regain control of their financial future.”

“People in Argentina do not trust the peaso.” Julian Kulombo, the first manager of Bitso, the main EXCHANGE of the encryption coin in Latin America, told Cointelegraph: “They are always looking for ways to store value outside the local currency.”

“Bitcoin and Stablecoins are allowed to overcome capital controls and protect their savings from reducing the value of the currency.”

Besides individual investors, companies in Argentina also use Bitcoin and Stablecoins to protect revenues and conduct international transactions. Some workers even choose to get a portion of their salaries in the encrypted currency to protect their profits from inflation.

According to economists and coding analyst Natalia Motel,

“Currency restrictions and capital controls in recent years have made the ability to access US dollars increasingly amid high inflation and a crisis of confidence in the Argentine peaso. In this environment, cryptocurrencies have emerged as an applicable alternative to maintain the value of money, allowing individuals and companies to exceed the limits of the traditional financial system.”

Although Bitcoin’s effectiveness as inflation is still present for discussion, Stablecoins has become a more practical solution in high inflation economies, especially those related to US dollars.

As for its economic size, Türkiye has emerged as a hot point for Stablecoin transactions. In the year before March 2024, purchases alone accounted for 4.3 % of GDP. This mutation of the digital currency, which is fed by years of inflation consisting of two numbers-which reaches 85 % in 2022-exceeded more than 80 % in a pounds against the dollar over the past five years, gained momentum during the epidemic.

Bitcoin’s adoption in Türkiye proves that citizens are being adopted, not governments

Although Turkey allows its citizens to purchase encoding, retain and trade, the use of digital currencies for payments has been banned since 2021 when the central bank of the Republic of Turkey prohibits “any direct or indirect use of encryption assets in payment services and issuing electronic money.” However, the adoption of encryption in Türkiye is still clear, with an increasing number of Turkish banks that provide encryption services, shops and caliphs that provide encryption options.

High inflation rates supported the erosion of the value of the Turkish lira, which lost approximately 60 % of its purchasing power with inflation increased to 85.5 % between 2021 and 2023. This has led many Turkish citizens to resort to Bitcoin as a value store and a means of exchange.

While some argue that Bitcoin scarcity is well rejoicing with long -term appreciation, which may exceed consumer inflation, its high fluctuations and frequent association with heavy technology indexes associated with risks indicate that Nasdak recently indicates that her performance is like a purpose of pure inflation is still mixed.

However, in countries that suffer from inflation such as Argentina and Turkey, where local currencies collapsed in value, “digital gold” has not been a decisive way to escape from local currencies, and to maintain the power of purchases in ways that traditional flags cannot.

Although Bitcoin is still one of the emerging assets, and its effectiveness as a hedge requires more study, there is one clear thing – so it has greatly outperformed consumer enlargement. For Bitcoin lovers, this alone is a sufficient reason to celebrate.

This article is intended for general information purposes and does not aim to be and should not be considered legal or investment advice. The opinions, ideas and opinions expressed here are alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.