Many recommend buying Bitcoin as a hedge against inflation. That is, dollar inflation is generally posed as a problem and Bitcoin is presented as the solution. After this position, it is better to have Bitcoin than the dollar as Bitcoin retains its value and the dollar depreciates at a rate of 2% per year. The secret lies in the scarcity of Bitcoin and the “infinite” supply of the dollar. That sounds nice in theory. But how does it work in practice?
The “bad” dollar with its “infinite” supply is a recurring theme in the crypto community. Everything seems to indicate that inflation is the current problem. And to add insult to injury, the Federal Reserve is continuing the dollar’s monetary expansion. The situation is dire and we only need a scarce currency. In a scarce currency scenario, the value of money rises and people can save.
Read on: Bitcoin and cryptocurrencies are not a hedge against inflation
Inflation is a tax on the poor. Because the dollar is always depreciating. Bitcoin, on the other hand, is a “safe haven” because it always increases in value because it is a scarce currency. When the world introduces Bitcoin, there will be no debt, there will be no inflation, and most of our economic problems will be solved through the efficiency of the free market.
According to this narrative, Bitcoin is the smartest way to overcome our inflation problem. However, if we leave Bitcoin Island for a moment, we will find that our island is a bit eccentric. The first thing visitors would think is that its residents are suffering from some kind of delirium. I mean they are crazy.
Within Bitcoin Island, the bitcoin narrative makes sense as the deception is shared. In other words, the community speaks the same language and everyone understands each other. Yet even the most devout people feel that something is wrong. What kind of inflation? The dollar is one of the most stable currencies in the world. Countries with high inflation use the dollar as a hedge. An inflation rate of 2% per year is acceptable and is the perfect time to plan. It’s not the end of the world.
Nobody in his full power collects dollars as an investment for a long time. We all know well that the dollar is primarily a medium of exchange and is designed for the conduct of business transactions. Of course, using the dollar as a long-term investment vehicle is not a good idea. Cash is not a good investment. “”Crash is rubbish”. Before bitcoin and after bitcoin. This is why people invest in assets. That is elementary. No one is going to win a Nobel Prize saying that cash is not a good investment. This is just one big reveal on Bitcoin Island.
To protect yourself from inflation, it is best not to have cash. Suppose we have money and we need to make some expense in a few years. In other words, we cannot afford to lose that 4% to inflation. It would be best to get an option to freeze the price. If that is not possible, you can buy a financial instrument that will give us a return of more than 2% per annum for two years. A triple-A bond could be the perfect solution.
Read on: The problem is not inflation. What’s the problem?
Suppose this alleged issue is a children’s school. It would not be a purchase as such. It would be a kind of fund that would guarantee a son’s expenses while studying. We have the money, but inflation could hurt the fund and hedging is needed. What possibilities do we have?
We could buy a property like a car or a house. However, doing so would involve a high level of risk as these markets are not very liquid. In other words, there is no guarantee that we will get our original investment plus 4% interest. We can also go public and buy Apple or Amazon stocks. But we fall into the same. While this option offers us greater liquidity, the risk is very high as the stock market fluctuates too much to offer any real protection.
Now let’s analyze the Bitcoin option for a moment. Bitcoin friend, you who defend the (conventional) Bitcoin narrative on Twitter and at family dinners. Put your hand on your heart and say you have the kidneys to tell your wife that you will be investing all of the money from the Junior College Fund in bitcoin since bitcoin is a scarce currency and a hedge against inflation the dollar represents a coin of “infinite supply” and will lose its value over time. Can you really do that Case closed.
A volatile asset is never a guarantee of anything. By definition, it cannot protect us from inflation. Could we sign a purchase / sale contract 3 months, 6 months or a year in advance and place the price in Bitcoin? Can we sleep peacefully with it? Suppose it is our family house or our car.
Would you recommend the full conversion to Bitcoin to a retired family member living on a fixed income instrument? Honestly no. In short, hypocrisy. It’s time to take this seriously. We can’t change an entire community overnight, but we can start opening up to ourselves.
Sure, we can invest in Bitcoin. Bitcoin is an asset with a lot of potential. We need to have bitcoin in our investment portfolio. But we have to accept that it is a risky asset. Bitcoin offers too much volatility for us to present with a “safe” asset. Who are we kidding?
Read Next: The Federal Reserve And Inflation: How Is The New Strategy Affecting Bitcoin?
Bitcoin’s constant ups and downs are a reality. Personally, I know people who bought Bitcoin in 2017 for $ 19,000 using credit cards. How do you think they react when they read that Bitcoin is an asset that protects us from inflation?
So what is the purpose of this article? Well, it’s a common sense call. Friend, take care of your bag. Don’t believe in crazy stories. Believe what your eyes see. Don’t eat big stories. Study your investments well. And weigh the risks of each option very carefully. A good dose of skepticism is never too much. Is inflation a problem right now? Check the data. Is Bitcoin a Stable and Safe Option? Check their history. Is Bitcoin the only option for the dollar? Study the other investment options. Analyze the pros and cons of each option. Ignore the fans. Don’t forget that your bag comes first. Reason!