With an ongoing war in Europe and the world entering its third year under COVID-19, the American economy continues to take blows. One particularly notable consequence of recent events has been rising inflation. CNBC reports that our consumer price index (or CPI) has increased by 7.9% over the past year –– the fastest acceleration the economy has experienced since 1982.
If you’re an investor, you may be rightly worried about how this is affecting the value of your portfolio. You might also be considering further investment in assets that can act as hedges against inflation, like gold, real estate, or collectible items. However, there’s also another option you can try: cryptocurrency.
Though crypto is a relatively new asset in the world of investments, it’s already beginning to prove its potential in protecting users from inflation. Here’s how:
What is inflation, anyway?
Before getting into how exactly how crypto protects against inflation, it’s best to recap what inflation really is (beyond scary news headlines). A guide to inflation by AskMoney explains that the term refers to the tendency of money’s purchasing power to decrease over time. For example, $0.34 was enough to buy a gallon of milk in 1920; today, you’d need $3.50 to buy that same gallon. The rate of inflation is determined by a number of things, however, ranging from national debt and government regulations to economic growth and exchange rates.
When it comes to your investments, inflation can decrease the value of a portfolio over time –– which is why crypto is so appealing to some as a hedge against it.