Cryptocurrencies have become touted as hedge assets to combat inflation, but they are also known for an innovative approach to the financial system – with Bitcoin as the original and most popular cryptocurrency available.
In a nutshell, cryptocurrency is a digital asset that has the underlying foundation of blockchain technology. There are thousands of cryptocurrencies in the market, with different types that are designed to fulfill different purposes.
Different types of cryptocurrencies
The original cryptocurrency was designed as a way to make payments and store value. In 2008, Bitcoin was launched as an approach to the current money system. Other cryptocurrencies to conduct transactions and make payments have been launched since, such as and Litecoin.
Stablecoins are cryptocurrencies that are pinned at a 1:1 ratio to another asset – commonly a fiat currency. This is to combat the volatility commonly seen in cryptocurrency while retaining the perks of digital assets, such as decentralization and full ownership.
Bitcoin volatility
As mentioned, cryptocurrencies are reputable (perhaps notorious) for their volatility, having experienced significant price swings in the past. For investors, this volatility can be off-putting as a high-risk asset. When looking at the price movements of the cryptocurrency market, it’s important to take a broader look at the history. Over the past few years, Bitcoin has performed over and above all other asset classes, including real estate and gold.
While it might display volatile values in the short-term overview, long-term trading has delivered an impressive ROI.
Can cryptocurrency effectively hedge against inflation?
Typically, digital assets like Bitcoin have been seen as hedge assets against inflation and economic uncertainty. This is because movements in the cryptocurrency market have not been linked movements with global economics traditionally. However, recently, there has been a closer correlation has formed between cryptocurrencies and the stock market – especially that of tech firms.
The decentralized nature of Bitcoin and cryptocurrencies has been significant in why Bitcoin and cryptos are hedges against inflation; because they are not regulated in the same way that fiat currencies are. The leading reason for Bitcoin as a hedge against economic inflation, however, is that it has a limited supply available to be mined (created), and once that number has been reached, no more BTC will be able to enter circulation. This capped supply means that Bitcoin will never run the risk of “overprinting,” which is a key factor in inflation.
Financial inclusion with cryptocurrencies
From a global and socio-economic perspective, Bitcoin is able to offer financial access to the global “unbanked” population. More than 1.7 billion people across the world don’t have access to banks, which means they face significant financial exclusion.
Because of its design, Bitcoin only requires a smartphone or device. Existing online, it is able to offer billions of people across the world access to a financial system without the need to open a bank account.
CEO commented on the benefit of Bitcoin and its potential future in finance:
“Bitcoin is not only a revolutionary step in the financial world, but also bears a socialist approach to global economic inclusion. For some, opening and using a bank is impossible, and cryptocurrencies pave the way for them to use money beyond cash.”
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Buying Bitcoin doesn’t need to be complicated or require active trading. If you want to invest in a cryptocurrency, you can choose to trade it actively, trade it passively with the support of algorithmic intelligent software offered by , or store it as a longer-term investment.
Buying a small amount of Bitcoin now can be a great way to learn the ropes of the cryptocurrency market without making a major investment. The more you know, the better the chances of your crypto investment growing.