Wed, 17 Aug 2022

Everything you should know about bitcoin and inflation

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04 Aug 2022, 22:24 GMT+10

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The fall in Bitcoin's price in these past few months has affected every investor in one capacity or the other. It should, however, be noted that there are several forces underneath the green and red candles you see on your charts, and these forces are such that they could mean the end of an era if not properly managed.

If you want to buy Bitcoin, you should familiarize yourself with the crypto market.

Sometimes last year, the price of bitcoin was about twice what it is currently, and barely a year later, the entire crypto community has slipped into a bearish season with little or no prior notice. What could be the cause of this drastic and consistent decrease in the price of bitcoin and other crypto assets?

One of the main focuses is on the impact of inflation on the current price of Bitcoin as it slips between $19k and $21k. As you must have known, inflation occurs when more money is available to buy the same type of goods/services, causing a price increase.

Bitcoin used to be a major beneficiary of the money injection into the economy. However, it was short-lived. The reason is that the United States Federal Reserve hiked rates to keep the economy from witnessing the highest level of inflation in years, causing BTC to nose-dive into one of its worst trading years.

Looking on the bright side, most traders and crypto investors now understand how inflation could affect the crypto community.

Inflation used to involve banks and financial institutions alone. However, this rally has now become an important factor to consider even before buying or trading bitcoin in any capacity.

However, some of the factors that contributed to the recent price decrease in the crypto community could be attributed to the United States CARES Act, the war between Ukraine and Russia, and semiconductor factory slowdowns, amongst others.

You should note by now that inflation does not affect people who continue to acquire cars, homes, and other luxuries irrespective of the huge price.

Other major contributors are driving the concept of inflation.

Before the 2020 pandemic, consumers spent about 38% on goods and 61.3% on services. During the pandemic, there was a 20% increase in the demand for goods worldwide, but the increase in production barely attained 5%, and prices still increased accordingly.

Most individuals that received stimulus checks have all invested in the crypto community, bringing the same effect to the crypto community (although it might have been on a smaller scale).

The difference between cryptocurrencies and fiat

The debate about which of the above should become the most recognized form of money has never been hidden. It is such that ever since the development of bitcoin (whose aim is to be the next generation of money); there have been several factors to consider regarding which form will suit exchange and spending the most.

While this debate is still ongoing, it is worth noting that crypto and fiat have some core similarities. One of the similarities is that, based on primary belief, both crypto and fiat can become valuable based.

However, the difference between these two is that while fiat has a central authority and power over your money, crypto gives each of its investors a money printer by allowing everyone to invest in any token of their choice and, over time, build value and utility.

The early bitcoin and crypto adopters were probably convinced that a time would come when the world would need an alternative form of money as technology advances. However, it is important to note that there was a time when the price of bitcoin increased alongside inflation.

So, the main question now is, was the narrative of bitcoin being resistant to inflation a false one? While this might be somewhat tricky to grasp, it is worth noting that bitcoin might cause inflation in the financial sector.

That established, trading and investing in bitcoin will take a great deal of intellect. While some individuals ensure they do the math alongside their technical analysis before buying bitcoin, it is worth noting that you might need more than relying on technical analysis at some point.

There's nothing wrong with technical analysis. It remains one of the safest means of becoming a pro-crypto investor. You should also note that no technical analysis would have predicted the impact of the Ukraine war on the crypto community would be this severe. So, while you trust your analysis, you should always remember that the crypto community is highly volatile.

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