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How bitcoin can mitigate inflation

By Sponsored
10 May 2022   |   4:36 pm
Many have described Bitcoin as the digital gold that would solve inflation. Find out how Bitcoin can mitigate inflation.

Many have described Bitcoin as the digital gold that would solve inflation. Find out how Bitcoin can mitigate inflation.

Bitcoin debuted as an alternative transaction currency for daily purchases and money transfers. The majority of companies and individuals that have adopted Bitcoin mainly use it as a means of payment. However, investors have discovered Bitcoin can also serve as a store of value, with a better resilience to inflationary risks than traditional investment assets. 

That is why most people today describe Bitcoin as the digital gold that would fix the rising inflation rates globally. Unlike traditional assets, Bitcoin has several unique characteristics that enable it to withstand inflation much better over time. The following article discusses how Bitcoin can help in mitigating inflation. 

Limited Monetary Supply 

Experts claim governments and banks impact inflation through monetary policies that enable them to print as much money as possible. That creates an excessive money supply, exceeding the market demand. That results in the devaluation of local currencies, inducing high inflation. Bitcoin can help prevent such occurrences because it has a limited supply cap of 21 million tokens. 

That means no more of the coins will ever come into circulation after reaching the 21 million mark. Miners have currently minted about 19 million tokens. The mining occurs at a pre-determined rate by the Bitcoin protocol, making it impossible for any individual or entity to regulate Bitcoin’s supply and circulation. 

Apart from the 21 million Bitcoin supply cap, the currency is also subject to halving. That cuts the rewards issued to miners by half every four years, inducing further scarcity. That impacts a diminishing supply of Bitcoin. Meanwhile, its adoption is growing as people discover Bitcoin’s many real-world uses. Leading crypto trading platforms like the NFT Loophole report increasing Bitcoin daily trading volumes, indicating its growing demand. 

Bitcoin’s declining supply and growing demand attract higher prices like any other open market. Besides, the limited supply amidst growing demand also allows Bitcoin to retain a higher purchasing power over time, mitigating inflation. Bitcoin experiences swift price swings, but it has demonstrated a more significant potential to rebound quickly and hold its value over a more extended period than traditional assets. 

Decentralized Financial System 

Governments regulate the usage of traditional investment assets in their economies. They mainly use laws and regulations to control the flow of investments into and outside of their borders. That gives them the power to influence investments and transactions for personal gains, impacting more significant inflation risks. 

Bitcoin is a decentralized transaction currency and investment asset without a central authority. It works on a distributed network comprising random nodes in different parts of the globe. Its blockchain technology verifies and validates transactions on a digital public ledger, accessible to all users on the network. 

Bitcoin transactions do not involve intermediaries such as banks that governments often use to influence financial systems. Instead of a central authority, Bitcoin operates on a consensus basis, giving its users collective ownership of the network. That eliminates any potential political or institutional influences that destabilize Bitcoin’s value, protecting investors from inflation. 

Bitcoin’s prices swing upwards and downwards based on public perceptions. Positive sentiments about Bitcoin strengthen investors’ confidence in it, impacting price growth. Alternatively, negative comments and events such as hacking that portray Bitcoin in bad light curtail investors’ confidence, driving its prices lower. Bitcoin’s decentralized system prevents government and institutional influences, ensuring greater autonomy in investments and transactions. 

Overall, Bitcoin has numerous qualities that can help global economies mitigate inflation. Its limited supply and decentralized network eliminate potential political influences and enable it to retain a higher purchasing power over time, curtailing inflation. However, Bitcoin also has some risks that investors should understand before investing. 

 

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