We now have record inflation in many parts of the world, unheard of for years but decades. The question is: will bitcoin protect our money from inflation?
If someone bought BTC in November 2021, at the all-time high valuation of over $68,000, currently such a person incurs a loss of -63%. (the price of BTC at the time of writing was just over $25,000). However, if someone bought BTC in 2020 at a price of around $10,000, they can now say with certainty that their investment helped protect and multiply their wealth. This argument is even more powerful when we go back to previous years. For example, let’s say someone bought BTC in 2013 for around $100. Currently, its investment is almost 26 thousand. percent positive. Such a person will certainly admit that bitcoin is inflation protection for them.
Bitcoin and inflation
So if we’re dealing with record high inflation, why isn’t bitcoin going up more? Shouldn’t he already have a valuation of around 100,000? hole.?
The cryptocurrency industry is still very young and has its own rules. Investing in crypto projects is mostly speculation, and even the very idea that bitcoin is an inflation hedge should be considered speculative. It didn’t take investors long enough to actually believe such arguments and start acting appropriately.
For now, BTC, like other big cryptocurrencies such as Ethereum and Cardano, is still too small. The entire crypto market is currently worth $1.02 trillion, whereas in 2021, even before escalating inflation, subsequent issues with COVID-19, and the invasion of Ukraine by Russia, it reached an all-time high of nearly $3 trillion. For comparison, Saudi Aramco is valued at $2.28 trillion, Apple costs $2.23 trillion, and Microsoft – $1.9 trillion.
In other words, there is no shortage of companies that have higher valuations than the entire cryptocurrency market. Bitcoin is the largest and occupies almost half of this market, with a valuation of $483 billion, more than Meta (Facebook), TSMC or Nvidia. At the same time, there are more than 19,000 on the market. cryptocurrencies, which shows that it is very “diluted”.
There is still a long way to go before enough companies, institutional investors, economies, and individuals can transfer a large portion of their wealth to BTC. Only then will the bitcoin price become more stable, reducing the risk of sharp price swings. One such asset so far is gold, with a market capitalization of $11.8 trillion. And only gold has an anti-inflationary narrative that has been proven over many years.
Where are the recent bitcoin declines coming from?
From March 2020, bitcoin almost constantly increased in value – until April 2021, when it reached the value of more than 64 thousand. dollars, and then fell to about 32 thousand. in June. Later it climbed higher again, generating the current record of over 68,000. hole. in November. All in all, this is a very long period of growth, so the bull market had to end or at least stop. Investors were bound to make gains eventually, and falls were inevitable. Especially since BTC is still a speculative asset and its high valuation is mostly based on hope and promise than on actual implementations and number of users. There are more and more, but still not enough to justify such a high valuation.
In these times full of adverse economic events, assets such as bitcoin are particularly prone to decline. This is similar, for example, to the shares of innovative start-ups or technology companies, which have been depreciating rapidly since the start of the year. For example, Tesla shares have already fallen 41%. year-to-date, and Nvidia, Uber, or Zoom by 43%, 46%, respectively. and 40 percent If someone has invested in the Nasdaq 100 index in recent years, every year – since 2009 – generates a profit, while from the beginning of 2022 he will experience a loss of minus 25-30 percent . Most investors aren’t used to tech companies losing value this way.
Investors today have good reason to worry: from inflation and high prices, to broken supply chains and growing global warming problems, to war in Ukraine and something which concerns only our country, that is to say the Polish Order. Costs and prices go up, turnover goes down, savings go down. At times like this, it is difficult – especially for retail investors – to find money for assets like bitcoin. Most of us need money here and now and only a few can afford to buy BTC or other assets in the hope that there is a high risk that “in 5 years I make a profit”.
Invest. Difficult choice
One thing is certain: the currency is depreciating. One only has to look at gasoline prices, which are already above 7.50 and 8.10 PLN (95 and 98), to easily conclude that the government and the central bank are constantly devaluing the currency.
Poland as a country is extremely mismanaged and the government has an unprecedented policy of handouts just to buy the votes of its electorate. In terms of inflation, Poland is in a terrible situation – in our country inflation is already 12.4%. Every year. It is worse than our country only in Russia (17.8%), Argentina (58%), Turkey (73.5%) and Venezuela (222%).
Young people who are clearly not the ruling party’s constituency are beginning to lose faith in banks and politicians, and they are even choosing speculative assets like bitcoin to protect themselves and try to multiply their savings. They are faced with a difficult choice: either they will believe in The Polish zloty, which from year to year, like the dollar or the euro, loses purchasing power due to artificial economic development driven by overprintingor they will believe in bitcoin, which cannot be printed, but is hated by banks and politicians, as well as most of the media, who do not understand its value and often argue that it is a sort of a financial pyramid (these folks are worth recommending a series of Secret Money Movies – can be found on YouTube).
On the one hand, we have something that is known and trusted, but will almost certainly not allow the average person to accumulate wealth. Especially in the era of such high taxes and duties. On the other – something that is not yet proven, but which holds out hope for big long-term gains. Each of us must decide for ourselves which risk we prefer to take.