The world is becoming increasingly volatile and uncertain. The statement that “inflation is the silent thief” loses relevance. In 2021, inflation has become quite a loud and brazen crook. Now, inflation is at its highest point in the last forty years, already exceeding 5% in Europe and reaching 7.5% in the United States. The conflict between Russia and Ukraine affects the futures of gold, wheat, oil, palladium and other raw materials. High inflation in the US and Europe has already become a real threat to the capital of tens of thousands of private investors around the world.

Last week at the Federal Open Market Committee (FOMC) meeting, Federal Reserve Chairman Jerome Powell said he would recommend a cautious increase in interest rates. At the same time, Powell mentioned that he hoped the crisis in Eastern Europe would not only result in higher prices for oil, gas and other raw materials, but also boost inflation. Powell also explicitly reaffirmed his determination to raise the rate as much as necessary, even if it causes a recession.

crypto to the rescue

Many investors are looking for ways to protect their savings from inflation using cryptocurrencies.

Chad Steinglass, head of trading at CrossTower, is skeptical about crypto as a defensive asset. Steinglass commented to Cointelegraph:

“It is important to remember that cryptocurrencies are still a young asset and are traded more as a speculative asset than a defensive one.”

In fact, cryptocurrencies differ from fiat currencies in their volatility. Even the most stable cryptocurrencies, Bitcoin (BTC) and Ether (ETH), which are of great interest to institutional investors, can go up and down tens of percent in a day.

Of course, there are more use cases for Bitcoin every day, and it already functions as a base layer for the emerging alternative financial system. In the longer term, this trend will develop which will not only increase the price of Bitcoin, but will also result in a gradual decrease in its volatility.

To protect money from inflation, investors buy gold, cash, or real estate. Speaking to Cointelegraph, Paolo Ardoino, chief technology officer at crypto exchange Bitfinex, compared Bitcoin to gold:

“Crypto and Bitcoin, in particular, have unique properties and are a form of digital gold. In particular, it has proven to perform well when money is being debased by central bank stimulus methods. This, of course, is one of the original intentions of Bitcoin: to protect people from this very phenomenon.”

Jeff Mei, director of global strategy at digital asset platform Huobi Global, also shares this opinion. Mei said that Bitcoin is a great hedge against inflation because there are only 21 million Bitcoin available once all of it is mined.

Derivatives or not

Investors often use derivatives in traditional financial markets to protect savings from inflation. Rachel Lin, co-founder and CEO of trading platform SynFutures, said that by using derivatives like Bitcoin futures, investors could be exposed to BTC with much less capital and limit potential losses.

But Ardoino does not recommend that investors use crypto derivatives for this purpose. He thinks that direct exposure to Bitcoin, which he calls “the king of cryptocurrencies,” is more advisable.

In addition to Bitcoin, Mei highlights Ether as one of the most stable digital assets. She opined to Cointelegraph that Ethereum competitors like Polkadot (DOT), Terra (LUNA), and Solana (SOL) could also be seen as a store of value.

Lin noted that if investors are simply looking for a way to earn a fixed income, they could convert their fiat money into cryptocurrencies and deposit it into some of the largest centralized finance (CeFi) platforms or top-tier decentralized finance (DeFi) protocols. level. This potentially earns a much higher return than depositing cash in a bank.

Steinglass remains skeptical about comparing cryptocurrencies to the dollar in the current situation, now that the conflict in Eastern Europe has caused the dollar to rise in value relative to many other currencies as people fight for stability. For the moment, the demand for dollars has overcome the fear of inflation. Steinglass added:

“On the one hand, cryptocurrencies are an element of an alternative monetary system and a much-needed store of value, and on the other hand, they remain a risky asset at a time when investors around the world have been de-risking “.

Is gold the answer?

None of the experts interviewed by Cointelegraph mentioned gold-backed stablecoins like PAX Gold (PAXG) as their preferred defensive asset. Historically, however, gold has been a traditional tool used to protect capital in times of financial turmoil. The price of gold is constantly increasing over time. Throughout all of 2021, the price of gold was between $1,700 and $1,950 an ounce. It rose further to $2,050 an ounce in 2022.

Institutional investors have shown increased interest in gold-backed stablecoins, but the same cannot be said for the younger generation of retail investors. Perhaps the main problem with gold-backed stablecoins as a hedge against inflation is not technology but ideology. For many crypto folks, both fiat currencies and assets like gold represent ancient values.

It is clear that in 2022 inflation will remain a threat to investors’ capital, and the crypto industry has yet to find its answer to the question of combating this “silent thief”.

This post Cryptocurrencies against the ‘silent thief’. Can Bitcoin protect capital from inflation?

was published first on


Write A Comment