The economic situation is uncertain in all markets. The pandemic, the war in Ukraine, logistical bottlenecks…and now we must add inflation to this sinister cocktail. Of course, these economic swings also affect cryptocurrencies, and we tell you how inflation affects them in today’s video so that you are aware of everything if you decide to invest in cryptocurrencies.
Inflation is a process by which, in short, there is more money circulating than the market can absorb. This makes money lose its value and therefore everything becomes more expensive. Until the market regulates itself, which is achieved, among other things, by ceasing to print banknotes and raising interest rates, it is normal to look for safe-haven securities to prevent money from devaluing.
Safe-haven securities are assets that maintain or even increase their value in times of economic turmoil. Traditionally, the most popular safe haven values have been works of art, precious metals (especially gold), etc… but could crypto be a safe haven?
Bitcoin and other cryptos have the particularity of being finite, which basically makes them immune to their own inflation. But if the money backing them drops to zero, that’s not much consolation. At the moment, and in this last year in which inflation has skyrocketed, cryptocurrencies have lost value.
However, it is not the only time this has happened and always, after major falls, cryptos in general have reached new all-time highs. This is not to say that cryptos are good to invest in times of inflation per se, but if their price falls sharply, it might be time to think about investing.