Bitcoin as a Hedge against Inflation

It seems that inflation is on everyone’s minds right now. Whether it be the rise in fuel prices or daily essentials, prices for almost everything needed for a household has been on the upward trend recently. In fact, in March this year, India completed 12 successive months of double-digit wholesale price inflation (WPI).. 

Inflation is often tolerated as a necessary evil to fuel the overall economy – which it is. But at the same time, as the ‘purchasing power’ of the rupee decreases over time – we are all in a race to beat inflation in terms of our savings and investments.

And to protect these savings from the devaluing effect of inflation, Bitcoin offers a seemingly perfect solution.

With a protocol that is coded to be deflationary, Bitcoin protects against inflation and the possibility of decreased purchasing power. New Bitcoin are mined using computing power, and the mining rewards are predetermined – the reward halves every four years; hence, the new supply of bitcoin halves – making Bitcoin’s issuance schedule consistent and predictable. Currently, more than 90% of Bitcoin are already in circulation and the max supply is capped at 21 million. Bitcoin’s inflation rate, calculated as the percentage of new coins issued divided by the current supply, is currently at 1.8% per annum (p.a.) and is scheduled to decrease after the next halving around March 2024.

Also, the decentralized structure of Bitcoin takes it out of the control of a centralized authority making it extremely resilient. With thousands of nodes functioning across the globe, the network is optimally resistant to external attacks that might be seeking to alter its monetary policy, which might put the inherent scarcity of the digital coin in peril. When it comes to levels of decentralization, no other asset comes even close to Bitcoin.

Theoretically, all these factors make it a great hedge against inflation. 

However, varying factors have caused extreme volatility in its price. Bitcoin ‘whales’ (large bitcoin holders) have also been able to manipulate the asset’s price by buying or selling the asset in bulk. 
Another problem with bitcoin is the number of regulations it currently faces from lawmakers across the world. This means that the price of the asset is often at the mercy of institutions and governments. And strict regulations against Bitcoin can hinder the adoption of the asset, resulting in deprecating prices.

While we do agree that Bitcoin is currently not a perfectly reliable inflation hedge due to it’s volatility, it is our strong belief that it will definitely be one in the long-term.

None of us can say for certain how many rupees will be created between now and five years from now, but all of us can tell exactly how many new Bitcoin will be issued. Which of these do you think would be more reliable? The asset that costs nothing to produce, with an unlimited supply, or the asset with known rules, a network of fierce advocates and a cost associated with the creation of new units? 

The goal of any financial asset is to allow for economic output to be saved for future consumption. Holding cash today in the inflationary environment for a client is a guaranteed recipe to lose purchasing power – while the exact opposite has been true over the years for bitcoin. 

So, in a world with convoluted and confusing financial markets, a base monetary system as transparent and open as the Bitcoin network is a game-changer.
Bitcoin is the remedy that helps ease the common man’s concerns by allowing their savings to gain in value. In a world of plenty of uncertainty, an asset like cash that costs nothing to create is a problem. Saving for goals is as challenging as ever, and inflation makes life cost more.

Bitcoin is ushering in a deflationary future, where an individual can create value, be paid and store that into the future for when needed, allowing savers to better enjoy the fruits of their labour. That change enables clients to achieve those lifelong goals sooner – and that’s all thanks to Bitcoin’s open monetary network.

And that pretty much sums up what we want to do with GoSats – to bring these benefits of Bitcoin to the masses, and help usher in a brighter future.

Together, WAGMI 🚀

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