Evan SelemaniAs of this writing, inflation is a big part of the conversation. Everyone is talking about it, whether in the media, in the political space or even in the families who are most affected by this scourge.
The rise in prices affects all sectors. Purchasing power is collapsing. Currencies, the euro in particular, are losing value. What causes inflation? Can bitcoin, one of whose promises is to beat inflation, get us out of this impasse? All the answers in this article.
Galloping inflation since the start of the year
Since the start of the year, several countries have failed to stop inflation. Last June, in the United States, the inflation rate hit a record not seen in 41 years. The country recorded a price increase of 9,1%. As for the euro zone during the same period, the indicators pointed to 8,9%.
The current economic crisis, which has all the makings of a recession, is mainly driven by the rise in the price of energy, housing and also food. The pressure is increasing more and more on American households which support an increase in food prices of 12,2% in one year. This is the largest increase since April 1979.
On the European side, it is the energy crisis that hurts the most. The price of gas has reached record levels. As winter approaches, Russia has significantly reduced its gas exports to Europe, partly as a result of sanctions taken against the country following the war in Ukraine. Thus, being very dependent on Russian gas, the old continent pays dearly.
The consequences were not long in coming. The European currency is melting like ice. It reached parity with the dollar. Yes, the free-falling euro has reached its levels of more than thirty years ago. At the time of writing, 1 euro is trading at 0.98 US dollars. However, a year ago today, 1 euro was worth 1.18 US dollars.
Source: google finance
Europe more affected than the United States
As we have just seen above, the European economy is suffering enormously from the current crisis. While next winter threatens to be colder than ever, particularly following the rise in energy prices, the currency is also losing ground and. Le Figaro reports that the price increase over a rolling year reached a record 8.9% in July.
If France records an inflation rate hovering around 6%, other European countries are even more affected. This is particularly the case for Estonia, Lithuania and Latvia. These three countries record an inflation rate exceeding 20%.
Why do currencies collapse?
The Covid-19 crisis has triggered a series of reactions from states on both sides of the Atlantic. With the global economy at a standstill, central banks have resorted to printing money. Subsidies in the form of “covid checks” have been distributed across the board to help households and businesses get through the crisis.
But what our very generous Politicians and central bankers have not explained where this money comes from. The answer, however, is simple. This money came from nowhere, like manna falling from the sky.
But the era of miracles being over, we must understand that the banks just printed money out of nothing, hoping to miraculously revive the so precious consumption. To do this, it was necessary to flood the economy with money. And this is what was done: the famous helicopter money.
🚁 The helicopter currency ( also called " money helicopter ") is a Monetary Policy in which a central bank, create currency to distribute it directly to economic agents punctually. It's the economist Milton Friedman en 1969 had used the expression in thought experiments. It's not a concept he dwells on, however.
At first glance, one might think that state subsidies were essential for families. It's real, but it was all fleeting. Many economists, with bitcoin defenders at the forefront, have repeatedly sounded the alarm.
For the latter, flooding the markets with magic money could not remain without consequences on purchasing power. Thus, inflation was inevitable. Time seems to prove them right. Almost all currencies around the world are collapsing, reaching levels of decades ago.
A slowdown in sight?
Faced with galloping inflation, the Federal Reserve (FED), the American central bank had no choice but to raise interest rates. So, it has become much more expensive to borrow. Consequently, the money supply on the market decreases and causes demand for products to plummet, which has the effect, at least theoretically, of the stabilization or even collapse of prices and de facto an increase in purchasing power.
A slight slowdown was detected in July with a slight drop in certain raw materials such as corn, wheat and copper. So everything is not so dark. In a few years things could return to normal, according to a survey by the New York FED. According to the June survey, Americans expect inflation of 3,6% within 3 years.
But these assertions, coming from institutions which promised annual inflation of 2%, should be taken with a grain of salt. Furthermore, if the FED maintains the tightening of its monetary policy, the situation could gradually improve. As for the European Central Bank (ECB), the key rate was raised by 75 points. With this measure, the guardian of the euro hopes to limit the rise in prices.
Will Bitcoin be able to protect against this galloping inflation?
While bitcoin was trading around 68 in November 000, it did not remain unscathed in the face of accelerating inflation. Indeed, the leading cryptocurrency in terms of capitalization has lost more than two thirds of its value. At the time of writing, it is trading around 2021 euros, according to data from CoinmarketCap.
Although inflation does not hit bitcoin per se, the complex economic environment takes a toll on investors' portfolios. Indeed, its price is greatly influenced by several factors, including currently the consequences of the tightening of monetary policy. With a large mass of investors flocking to cash holdings, it is the balances for all financial assets, including bitcoin.
However, over the long term, as you can see from the chart above, bitcoin has proven its ability to retain value. Although it is very volatile in the short term, bitcoin represents a better alternative to fiat currency. But it all depends on the time horizon of each investor.
—>Read the article « Is bitcoin sound money?? "
It should be kept in mind that despite its limited supply, bitcoin is still too young an asset. Compared to traditional finance, its market capitalization represents only a small drop in the ocean. The more it is adopted by the masses, Nakamoto's invention will tend to regain a certain stability.
Regardless, the disinflationary nature of bitcoin makes it a store of value that could compete with gold in the future. Buying at current prices is like making a bet on the future. A future that looks bleak for your savings given the capacity of central banks to repeat the same mistakes.
If the invention of Nakamoto succeeds in his bet, the holders of the bitcoin will certainly be among the rare survivors of the economic crisis which is shaking our economies. VS
Investing in “safe havens”
Thus, to protect themselves from galloping inflation, some will invest in gold and in bitcoin as safe havens. This is a way of protecting yourself from inflation by investing in assets that increase in value over time.
- Buy bitcoin simply on the site Youhodler and generate interest every week.
- Read the article to discover the 5 sites to buy gold with bitcoin.
Note: No financial advice is given in this or any other article on this blog. This is information of which you are the sole judge and master. Be responsible with your investments and only invest as much as you are willing to lose.
-----
Our affiliate links:
To buy cryptocurrencies (simple way):
- Public chat Binance (Get 10% off)
- Registration on the ByBit platform
Generate interest on your cryptocurrencies:
To secure your cryptocurrencies:
To have fun and play
- The best for bitcoin sports betting
- Discover the bitcoin casinos
