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TL;DR
- Inflation reflects a diminishing purchasing power of a currency
- Fiat currency has proven to be a poor store of value, as itâs subject to centralized inflationary policies
- Bitcoin is arguably a strong alternative to, or supplement for, cash as a store of value.Â
- Dollar Cost Averaging is a popular investment strategy for moving cash into bitcoin over time without worrying too much about volatility.Â
What is inflation?
Inflation, simply, is an overall rise in prices in an economy. This rise reflects a diminishing purchasing power of a given currency.Â
Economist Milton Friedman argued that inflation is purely monetary â determined by policy and printing of new money by centralized bankers. Subscribers to this popular theory refer to inflation as a âhidden taxâ from central banks.Â
What does this mean for you? Â
Well, if youâre holding US Dollars â in your bank account, pocket, lock box, or mattress â theyâre worth less now; 7.5% less than they were a year ago. Youâve lost purchasing power by simply holding your hard-won earnings.
People living in countries outside of the US, especially under authoritarian regimes, are very familiar with the nightmare of inflation and how monetary policy can cause populations to go bankrupt almost overnight.Â
Diversify your holdings
If youâve ever wondered why you canât simply hold your cash to avoid the ups and downs of investment markets, now you know.Â
Cash is still good for some things, but not as a primary store of value.Â
If youâve read up on investing even a little, youâve heard the term âdiversification.â Diversification means investing in multiple places to limit your exposure to a particular assetâs risk profile. Itâs designed to reduce the volatility of your portfolio over time.Â
Bitcoin as investment, and store of valueÂ
Bitcoin is often referred to as a âhedge against inflation.â While fiat currencies (such as USD) can be printed, and often are, Bitcoin has a fixed supply of 21 million BTC.Â
Bitcoin is decentralized, and canât be controlled by a small group of decision-makers in a particular economy, nation, or class.
Bitcoin vs. GoldÂ
Bitcoin is frequently compared with gold as a potential hedge against inflation and a store of value solution. (Remember, the value is what we need to store, and with cash the value can be easily manipulated. Cash is actually a very poor store of value.)
What gives bitcoin the edge over gold is its ability to be moved rather quickly over distance.Â
While the debate over bitcoin vs gold is still on, thereâs another way to conceptualize bitcoin here â bitcoin is gold for the internet. It has the exact qualities needed to serve as a store of value within a global, borderless, digital economy.Â
Bitcoin investing strategies
There are a couple popular approaches for changing your USD into bitcoin: timing the market and Dollar-cost averaging.Â
Timing the market can be time consuming as it often involves news tracking, price analysis, and a steep learning curve. And itâs not a proven method by any means. As weâve seen in the past month, even the practice of âbuying the dipâ can be a stressful experience when that dip keeps dipping before bouncing back.Â
Another popular and less time consuming way to invest is Dollar Cost averaging. With this method, you can change your USD into bitcoin a little at a time, over time, at regular intervals. This is said to create a stabilizing effect on bitcoinâs average price and protect against volatility.Â
You can even automate your DCA by setting up a ârecurring buyâ with an exchange. Okcoin offers recurring buys with daily, weekly, and monthly investment intervals.
Bitcoin and beyondÂ
With inflationâs rate and reach growing in the US, this is the perfect time to explore Bitcoin and other crypto assets as a way to diversify your holdings and set yourself up for a solid financial future.Â
The post Inflation, bitcoin, and the messy truth about cash appeared first on Okcoin cryptocurrency and bitcoin blog.
Disclaimer
The views and opinions expressed in this article are solely those of the authors and do not reflect the views of Bitcoin Insider. Every investment and trading move involves risk - this is especially true for cryptocurrencies given their volatility. We strongly advise our readers to conduct their own research when making a decision.