Global inflation and the cryptocurrency and the way to escape it

• Published 2 Year Ago
• DHS Blog

What effect do inflation and recession have on cryptocurrency?
In the world of cryptocurrency, there are two main types of ecosystems: This is a digital currency in which new coins are created by mining or storing. A token can be anti-inflationary (stagnant). Many people claim that the anti-inflationary status of Bitcoin is a problem. However, there are different aspects to each of these concepts that need to be considered.

 In this article, we define the concepts of inflation and recession (anti-inflation) and then examine their effects on cryptocurrencies and bitcoins. Stay with us.

Is Bitcoin an anti-inflation asset? How do we recognize this?

Inflation and recession (anti-inflation) are approaching the currency codes 

All known and important traditional currencies are inflationary. No ceiling or restriction may be imposed on the US Dollar, Euro, or British Pound. If needed, central banks can use a method called "helicopter money" to add more banknotes and coins to their economic ecosystem. Despite more money, central banks hope to improve the economic situation in their region.

Inflation has a side effect that most people overlook. As the current balance of a currency increases, its current balance decreases more and more.

In the field of cryptocurrency, there are two types of inflation systems: proof of labor (PoW) and proof of stock (PoS). 

Inflation and vice versa, anti-inflation, affect the price of bitcoin. Rising inflation will lead to an increase in the price of bitcoin. When inflation is negative, anti-inflation lowers the price of bitcoin.

Due to the outbreak of the Coronavirus, which has led to the economic crisis, central banks around the world have tried to stimulate the economy by printing more money. The world economy is in a cycle in which central banks are reluctant to remove money from the economy and usually add to the money supply. As a result, the money printing cycle has affected the price of bitcoin.

 Anti-inflation is a bad topic in a traditional financial ecosystem. Of course, cryptocurrencies such as Bitcoin can't be compared to any other currency in the world. As a result, this issue becomes controversial. It is also clear that most economists have remained in the old way of thinking. Anti-inflation is often associated with economies that are not performing well. In most cases, anti-inflation leads to lower prices. If this happens to Bitcoin, things will quickly change from bad to worse.

One thing to keep in mind is how, in times of economic turmoil, customers are flocking not only to invest but also to liquid currencies. This can be a good thing for bitcoin because it can lead to its future prosperity. In the long run, anti-inflationary currencies are much better options. As for the world's first cryptocurrency, its anti-inflation feature is likely to increase its value. So there is no reason to think that Bitcoin's anti-inflation feature is a bad thing.

Basic concepts of inflation and recession

In economics, the general increase in the price level over time is called inflation. On the other hand, the recession is the opposite of inflation and is sometimes called a lowering of the price level.

Therefore, we can define inflation and recession as follows:

Inflation is the expansion of money in the economy.

A recession is the decline and contraction of money in the economy.

One way to measure the effects of inflation or recession is to look at the Consumer Price Index (CPI). The CPI index involves complex calculations to determine the increase in the cost of goods or services. If the CPI increases, the effects of inflation on the economy can be seen. Recently, with the decrease in the unemployment rate and the increase in the printing of money, the value of the consumer price index has also increased very rapidly. As a result, the current inflationary environment could be the reason for the rise in bitcoin prices.

Can Bitcoin be an effective asset against inflation?

Inflation of fiat currencies occurs when the amount of money in the economic system grows significantly. This raises the price of goods and services. Therefore, citizens seek to invest in tools and assets that can maintain the purchasing power of their capital and protect them against inflation. These measures may be investments in the economies of other countries or companies that perform well in the face of inflation.

However, if investment or hedging against inflation does not go hand in hand with inflation, it will lead to a loss of purchasing power and a loss of capital. Since Bitcoin has a fixed inventory and this inventory will not increase, it is believed that these cryptocurrencies can be a store of good value and maintain the purchasing power of fiat currency.

What is the way to escape inflation?

A) Inflationary factors

There are several factors involved in causing inflation, the most important of which are:

"Liquidity growth

The economic structure of the country

* Increase manufacturing costs

*Imbalance between supply and demand

* Lower savings rates

*High rate of bank facilities

* Exchange rate fluctuations

B) Inflation's economic consequences

 The most significant effect of inflation is on income and wealth distribution.

People with permanent incomes, such as employees and retirees, as well as holders of bank savings and equities, become poorer, whereas those with variable incomes become wealthier. People reduce their monetary capital and increase their share of In this context, non-cash commodities and property are important. According to economists, inflation acts as a tax, reducing the wealth of the poor while increasing the wealth of the wealthy.

This increase in inflation has a significant impact on the economy's efficiency.

Inflationary growth takes enterprises' decision-making power away.

Government spending will rise as inflation rises.

The government, as the country's greatest consumer, must bear the brunt of rising inflationary costs.

Inflation will have an impact on the country's foreign exchange.

Inflationary strategies –

-One of the most effective ways to combat inflation is to control and manage liquidity.

To avoid inflation, government spending must be cut, government complex productivity must be increased, financial discipline must be maintained, and government financial activities must be transparent.

- One way to avoid inflation is to increase manufacturing productivity, or, in other words, the competitiveness of domestically produced products and goods.