Cryptocurrency is viewed as a volatile asset. However, in some countries that experience hyperinflation, the likes of Bitcoin is viewed as a more stable form of payment, store of value and even a safe haven. Can this be sustained? Can it be better than the dollar? Can it restore order to an already failed economy?
First we need to understand how hyperinflation happens. Hyper inflation is definitely a financial crisis. It is characterized by a rapid and uncontrollable increase in prices. Buying power of a local currency is almost immediately diminished. Causing fear, panic and uncertainty. With the lack of trust to an economy’s local currency, people flock to have their local holdings traded to foreign currencies.
Inflation is inevtiable. But it has to be maintained and controlled at an acceptable rate. Suddenly increasing the supply of cash thru excessive money printing or governments failing to repay a debt would almost guarantee hyperinflation.
Citizens of sinking economies will most likely opt to trade for the US Dollar which is currently the most stable and most powerful currency in the world. But with nations joining forces to overtake the US dollar (like BRICS) as the worlds go-to reserve currency, and the most powerful leaders preparing for a power grab, it got me asking would there be a better alternative to this?
*Step in cryptocurrency. * With mainstream adoption gaining more and more traction coins like, Bitcoin, Ethereum and Hive can offer a viable solution. It can be a great hedge against inflation. Here’s why: First is that no government can control or just suddenly increase the amount of Bitcoin circulating in the market. Bitcoin will never exceed 21milkion. Unlike fiat currencies which could be printed unlimitedly. Bitcoin is finite (just like gold).
If prices are spinning out of control, allocating to stable coins which is pegged 1 to 1 would also offer not only protection but also diversification. fiat currencies will have to be traded and regulated by governements. But crypto exchanges are mostly decentralized and free from a single corporations control.
Cryptocurrencies would also reduce the reliance on the us dollar during hyperinflation. (Or any other world currency out there) some emerging markets are already exploring to depeg their currency in search of alternatives and bitcoin is one of them.
Adoption of crypto would also eliminate the need of going to banks. During financial crisis, banks are overrun with people trying to take their money out. Crypto exchanges are connected globally and as long as you have internet access then you ate free to trade.
Developing countries and emerging markets like those in latin America has somewhat softened the blow of hyperinflation by adapting to the use of stable coins . Being digital and pegged to the us dollar helped prevented an almost certain downward spiral and financial collapse.
But like I always say be diversified hedging against inflation doesn't mean committing everything to crypto. You can combine different means to escape these types of situations like
Buying stocks, exploring international markets, stacking silver and gold (a personal favorite) and even purchasing real estate.
sources:
Hyper Inflation
Inflation
