back Back

Bitcoin can protect investors against inflation: Tom Albright, Bittrex Global

Baduz, Bitcoin, Bittrex Global, Distributed Ledger, Ethereum, Europe, GDPs

May 12, 2020

  • Baduz
  • Bitcoin
  • Bittrex Global
Share

By Tom Albright, CFO, and COO of Bittrex Global

Bitcoin can protect investors against inflation

As the initial market panic that followed Coronavirus around the world begins to clear, investors are starting to look forward to the challenges that lie ahead. It’s clear, that once the immediate medical crisis subsides, we will be facing an economic situation almost without precedent. The GDPs of every major economy will crater in the current quarter. Although many are hopeful that the recovery will come in the next quarter, there is potential for long-term recession.

As the world emerges from the medical crisis, industries that have been shut down will be left surveying widespread damage, some of it permanent. Consumers will be split between the fortunate ones that have been able to work and others whose incomes have suffered badly during the shutdown. Meanwhile, central banks are printing trillions in the new currency as they desperately roll out programs to jumpstart the economy and prop up ailing industries. This unprecedented increase in the balance sheets of central banks will have major repercussions for the world economy in general and for asset prices in particular.

Accordingly, investors are looking to assets that can provide a hedge against rising prices and the destructive impact of inflation. That much is clear from the price of gold, up over 11% year-to-date at the time of writing, while the S&P 500 is nursing a loss of over 12% even after the recent Fed inspired rally. We can expect that gold will continue to prove a popular option to protect against inflation.

But this time gold will not be the only save haven from the storm. In the inflationary period to come, we can expect Bitcoin to truly earn its moniker as ‘digital gold’, a store of value while cash is eroded and more bond yields turn negative. Bitcoin offers an inflation hedge for one obvious reason: unlike fiat currencies, the supply is limited. Only 21 million Bitcoins can be mined in total. There is no digital central bank that can debase the value by flooding the market. The decentralized nature means that the decisions of a few power-brokers cannot fundamentally alter the value of people’s holdings.

The idea of cryptocurrency as a store of value may seem counterintuitive when it remains a volatile asset class. But compare that to a commodity such as oil, whose price has been sent crashing by vanishing demand and a resulting supply glut, to the point where storage is beginning to run out – and many short-dated contracts have entered negative territory.

Volatility and risk, often conflated, are not the same thing. Despite the often choppy price movements, digital assets have more than held their own against the market during the ongoing economic storm as the variable supply-side and political interference are two problems that cryptocurrencies do not have to deal with, making them a potentially less vulnerable investment in times of turmoil.

Bitcoin is down a mere 4% year-to-date (and up 22% from a year ago), and Ethereum is up by a third. The early signs are that investors are turning to cryptocurrencies both as a key tool of diversification and a hedge against uncertainties to come. That is reinforced by data from the crypto asset manager Grayscale: in Q1 it saw inflows north of $500 million, more than doubling its previous best quarter. Almost a third of that capital came from new investors, most of the institutions. There is every indication that inflationary fears will add to the tailwinds that were already powering new investment in cryptocurrency, among them institutional involvement and improving regulation.

No asset class will ever be fully trusted until it can demonstrate its performance and sustainability during a crisis. For digital assets, which emerged out of the embers of the last financial crisis, the storm that is now engulfing global markets is set to mark a coming-of-age.

(Disclaimer: The views expressed here are those of the author’s and Bittrex and do not necessarily represent or reflect the views of  IBS Intelligence)

Previous Article

May 12, 2020

Digital transformation in banking accelerated by Covid-19

Read More
Next Article

May 13, 2020

Remittances and the role of FinTech

Read More

IBSi News

TrueLayer, Chip, Wealth-building App, Customer Experience, Faster Account Payments, BlackRock, Savings, Payments Initiation, Real Time Payment, Apple Pay, Europe

July 06, 2022

Baduz

Chip enhances savings experience with TrueLayer Payments

Read More

  • Daily insightful Financial Technology news analysis
  • Weekly snapshots of industry deals, events & insights
  • Weekly global FinTech case study
  • Chart of the Week curated by IBSi’s Research Team
  • Monthly issues of the iconic IBSi FinTech Journal
  • Exclusive invitation to a flagship IBSi on-ground event of your choice

IBSi FinTech Journal

  • Most trusted FinTech journal since 1991
  • Digital monthly issue
  • 60+ pages of research, analysis, interviews, opinions, and rankings
  • Global coverage
Subscribe Now

Other Related Blogs

June 30, 2022

Shining a spotlight on the Latin America e-commerce opportunity for FinTech

Read More

May 06, 2022

How digitalisation is enabling transformation

Read More

May 04, 2022

Institutional DeFi looks to CeFi for future-proof compliance

Read More

Related Reports

Sales League Table Report 2022

£ 1,500.00 / year

Know More
Global Digital Banking Vendor and Landscape Report Q1 2022

£ 1,500.00 / year

Know More
Wealth Management & Private Banking Systems Report Q1 2022

£ 1,500.00 / year

Know More
Global Transaction Banking Vendors and Landscape Report Q1 2022

£ 1,500.00 / year

Know More
Treasury and Capital Markets Systems Report 2021

£ 1,500.00 / year

Know More