Cryptocurrency has had a weird run lately. Digital currencies are often criticized for their perceived weaknesses, such as their lack of any central banking authority or their alleged use in organized crime. However, they also could be a great hedge against runaway inflation. According to some experts, inflation could be back in a big way soon.
What Do You Mean, Back?
Believe it or not, inflation has cooled off immensely since the height of the huge price increases in 2022. Inflation is down to just over 2% annually, the Federal Reserve’s target number. Notably, the Fed plans to slash interest rates soon. However, inflation isn’t actually back at that target number yet, and some other indicators suggest the global economy could be shakier than experts initially thought.
Hidden Signs
The US has only had two quarters of negative GDP since the end of the COVID pandemic. Despite this, the economy seems brittle at best. Weak jobs data and a recent reporting of overcounting of newly added jobs has underscored the potentially precarious situation the US economy is in. Rate cuts could lead to renewed inflation, and, in that case, investors are going to want a hedge.
Is the Fed Easing Up Too Soon?
The Fed easing up on interest rates makes sense, given that they’ve been at historic highs for years now. However, inflation is still at 2.9% now, and Fed Chair Jerome Powell previously wouldn’t budge on 2% being the benchmark he needed to see to authorize rate cuts. Still, with the threat of recession looming, now seems like the time to do something to get the economy flowing again.
Interest Rates Could Bounce Back
If inflation starts soaring again, the Fed will be in an awkward position. Do they pull back on interest rates and try again when things cool off? Do they let the economy ride out a rough period of monetary devaluation? There are no easy answers here. For investors, there’s an obvious path. Get your money somewhere it’ll preserve its value.
Inflation Hedges
When inflation seems like it’s about to kick up, smart investors sink their money into stable assets like gold or other ETFs. Recently, some investors have started speculating that cryptocurrencies like Bitcoin could also be strong hedges against inflation. After all, Bitcoin purchased even a few years ago is now worth orders of magnitude more than it was before.
Advantages of Crypto
Crypto has a few distinct advantages over fiat currencies. For example, you can easily transfer it without needing to wire money. You can also use it across borders with no problems. The presence of the blockchain ledger also means that it’s very resistant to fraud.
No Central Bank
And, for those who hate central banks and their financial policies, cryptocurrencies don’t have any central governing bodies. They’re independent entities that are given value by proof or work or proof of stake models and are somewhat self-policing when it comes to policy.
Bitcoin in Particular
Bitcoin will continue to resist inflationary pressure because a preset number of coins will ever exist. Once the cap is reached, it will be impossible to mine more Bitcoin. This cap makes Bitcoin inherently nearly invulnerable to the kinds of inflation that can impact fiat currencies.
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Any Drawbacks?
Of course, there’s no such thing as a perfect investment. Bitcoin could lose its value for any number of reasons, ranging from government regulation to investor sentiment. Still, Bitcoin tends to benefit greatly from increased liquidity, so some experts are saying it’s a savvy move to get into Bitcoin before the Fed starts cutting interest rates.
Read More: Federal Reserve Indicates Time for Rate Cuts is Now
Should You Invest Now?
Remember, Bitcoin is still pretty novel. Investing is tricky business, and even the experts can get it wrong. But one this is certain: the economy is in a weird place. As we enter unprecedented financial straits, you’ll need to stay in the loop to make educated calls about what to do with your money. That might even include diversifying a bit into crypto.
Read More: Is Cryptocurrency a Good Investment?