If you are familiar with BTC, you know that there will never be more than 21 million BTC in circulation. The supply production of BTC is getting slower and slower over time creating a kind of deflationary currency. When I started to learn about BTC, this is one aspect that appealed to me because I saw how much Fiat currency was created and how it would inevitably lead to a high inflation.
What I expected to see was that when inflation on the fiat markets starts to kick in, people would start to go into BTC and prices would increase, since BTC isn't directly affected by the inflation and could provide a safe heaven to keep purchasing power of your wealth.
I was right to see the inflation coming but I was definitely wrong on what would happen to BTC. A part from the past days, the price of BTC was affected rather negatively by the inflation. So why did this happen?
The inflation was there already but what happened was that all got accelerated
In a way, the money printing by banks and central banks was in place for quite some time in an effort to give a dynamic to the economy with close to zero interest rates. Then covid happened, then supply chain issues happened and then the Ukraine war happened. All these events triggered increases in prices for certain resources or goods. Suddenly, there were these huge levels of inflation because the offer couldn't complete the demand.
As a reaction, central banks started to increase their interest rates quite aggressively. Making lending, housing and many other things much more expensive. The effect was that this was added to the increased product costs that we already had.
Quite suddenly, companies and private people simply had much more costs to cover with an unchanging income. For many, the new situation had the following effects:
Expenses got bigger
Available savings become smaller or non-existant
To cover the costs, many had to pull money from their savings
When people need money, they tend to pull it from the sources that are the most volatile and for many this was crypto. People sold their BTC and altcoins and provoked a decrease in prices, which in turn made others worried. This again generated more sales of crypto and even lower prices...
Why it's good to have BTC in spite of all
However, the inflation hasn't disappeared. It's still around and I don't believe that interests can be lifted at will.
In England, the increase of interest rates has lead to a serious mortgage issue. Many home owners can't pay their mortgage payments anymore.
source: The Guardian
The example of England shows that interest rates can be lifted only until a certain degree to fight inflation without creating social problems and a major financial crisis. In my opinion, this will be the reason why we can't get rid of inflation so easily in the coming years. Even if it would be necessary to increase rates much higher, the society won't be able to cope with it.
We will probably reach a new stability with high interest rates and high inflation and people will start to worry about keeping the value of their assets. Even if they get more interests on their savings accounts, I don't think that it will compensate inflation. The need to preserve their wealth will become a very important factor and there aren't that many options...
It's also not surprising to see that many big financial players are pushing to get BTC ETF's accepted. They see the problem and BTC could become a really interesting alternative to keep the value of your fortune. In my opinion BTC could become the save heaven that I expected it to be but with a serious time delay.
P.S: This is my own analysis of the situation and please don't consider it as financial advice.
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