In light of the recent events in Ukraine, Russia, and elsewhere, in addition to other global economic trends, Bitcoin has been only further cemented as a safe haven asset.
Bitcoin’s deflationary nature has always provided a potential hedge against inflation, but this benefit has been further accelerated by the unprecedented amount of fiat money that has been printed by central banks throughout the pandemic. Because there will only ever be 21 million Bitcoins (with almost 90% already in circulation), the value of Bitcoin, like gold, is premised on scarcity, and that scarcity has been made all the more attractive by the profusion of fiat that has recently flooded economies worldwide. As the purchasing power of the dollar and other fiat currencies has steadily declined over the last two years, the value of Bitcoin has surged to all-time highs, up around 600% over the same period. Bitcoin has even far outperformed gold, which is up about 32% by comparison.
In addition to this, Bitcoin has emerged as a protective buffer from international politics of the kind that have recently cut off large numbers of Russian and Ukrainian citizens from the world economy. The beauty of Bitcoin’s decentralized nature means that it is both everywhere and nowhere, and thus outside of the control of governments and central banks. This can increasingly provide an important insulation of sorts from cataclysmic events both political and economic in nature.
It’s no secret that inflation has been running hot in the US lately, along with many other western economies. Measured as the consumer price index (CPI), the US dollar annual inflation rate (as low as 1.7% as recently as February 2021) has climbed as high as 7.9% by February 2022, the highest since January 1982. These numbers are only more alarming when considering that the CPI is actually calculated differently now than it was back then (beginning in 1990, the Bureau of Labor Statistics transitioned from a cost-of-living to a cost-of-goods model), and that by the former methodology, annual inflation could stand closer to 15% right now.
When more money chases the same (or in the case of the pandemic, fewer) goods, it drives their prices up, which makes assets like Bitcoin appealing for their fixed supply. Historically, gold has been a favorite asset during inflationary times for similar reasons, but while gold is actually up slightly over Bitcoin thus far in 2022, over the long-haul Bitcoin offers several advantages over gold as a store of value, including better divisibility and portability, which will only further its growing adoption as an inflation hedge moving forward.
Bitcoin has revolutionized the world because, in addition to being trustless and permissionless, it is also borderless. The Bitcoin network exists not on any central server in any specific country, but across every node in the network at all times, which makes its immutable public ledger resistant to outside intervention. The protocol of Bitcoin carries no bias except toward its own neutrality. Regardless of what may occur between nations, economies, and currencies, Bitcoin will continue to exist for all who own it.
As the political and economic turmoil in Ukraine and Russia has shown us, Bitcoin and cryptocurrencies can prove a financial safeguard amid conflict and even war. For Russians and Ukrainians alike, Bitcoin has offered a potential means to navigate circumstances far beyond their control. While fiat currencies are often used as a tool of war, Bitcoin can help protect individuals from the resulting economic fallout. Indeed, some have even argued that an inextricable product of fiat currency itself is perpetual war.
Now seems as good a time as any to begin or continue accumulating Bitcoin, and mining still offers arguably the most cost-effective way to do so. In addition to its profit potential, Bitcoin also stands as a stable and durable store of value against inflation, and offers a hedge against the impacts of political and economic instability.
Whether they realize it or not, all holders of fiat are currently in a race against time as their savings continue to inflate away, and Bitcoin and other cryptocurrencies will only see further adoption as a response. Within the last year, areas from El Salvador to Switzerland have embraced Bitcoin as legal tender, and the list will only grow from here.
At Wattum, we believe in the future of Bitcoin adoption and work hard to help support mining as a hedge for all. Get in touch with a sales representative to learn more about protecting yourself and your assets today.