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Crypto

Crypto will become an inflation hedge — just not yet

Crypto can act as a hedge against inflation, but not until it is supported and massively adopted.

Crypto can be a hedging tool, but it also comes with some inconveniences.

People using a blockchain with proof-of-stake protocols can access their funds at any time while constantly earning stake rewards on their current balance. However, some obstacles remain. Most cryptocurrency holders see the future potential of these Technologies. Ethereum has similar issues with energy consumption and mining pool centralization. Ethereum also has a security issue – more than $1.2 billion has been stolen on its blockchain this year.

There is also the problem of decentralized exchanges or DEXs, which are currently not as convenient to use as centralized exchanges. DEX with the highest trading volume, Uniswap offers inefficient pricing compared to a centralized exchange. A simple $1M transaction in Tether (USDT) for USD Coin (USDC) costs more than $30,000 in fees and slips as it is executed on a centralized exchange.

Crypto

These are technical problems that have solutions

Crypto holders are starting to accept that their wallets will always be fully traceable, which will appeal to new users who were previously hesitant about blockchain’s hyper-transparency. Crypto has future value features in an ecosystem that is currently struggling to lay its foundations.

The crypto economy still awaits applications that will take full advantage of decentralization without sacrificing quality and experience, which is particularly important for its widespread adoption. A payment system where each transaction costs $5 and the exchanged value is regularly lost would not be possible. Until the top cryptocurrencies are used efficiently for real-world payments, crypto will continue to be treated as a growth stock.

Inflation is caused by a lack of confidence – something crypto still needs

Inflation isn’t caused by just printing more money, which is to say that the presence of an asset doesn’t automatically cause its value to go down. Between September 2008 and November 2008, the number of billions of U.S. dollars in circulation tripled, yet inflation went down.

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Statista

Inflation has much more to do with public distrust of the central monetary system. This lack of trust – corporate price gouging, the confusion caused by pandemic relief packages, and significant supply chain disruptions (in part accelerated by the war in Ukraine) – has plunged us into the current crisis. The big money pressure in 2021 didn’t cause inflation, but it made it bigger.In terms of assets, the supply of funds alone is not an overly important issue for a store of value currency. What is stored is not necessarily part of the circulating supply.

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Crypto as an inflation hedge is possible, but not in the current climate

Cryptocurrencies fail as an inflation hedge during times of high volatility and market uncertainty. Current solutions to the usability problem are not sustainable due to their speculative nature and low transaction volumes. The decline of financially unsound blockchains impacts the entire ecosystem. Since cryptocurrencies currently follow growth stock patterns, they serve as a good hedge against inflation during periods of stable growth but fail during times of financial crisis. As cryptocurrencies evolve, they will also become an effective bulwark during these dips.

About Hama Amefiz

Amefiz is a professional blockchain, cryptocurrency and tech journalist, regular contributor to newsbsc.com who is writing analysis about the latest developments in the cryptocurrency and blockchain space.

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