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With Inflation Outpacing Fixed-Term Rates, Could Bitcoin Provide a Solution?

The information provided on this website and in this article does not constitute investment advice, financial advice, trading advice, or any other sort of advice and you should not treat any of the website's content as such. ICORating.com does not recommend that any cryptocurrency should be bought, sold, or held by you. Do conduct your own due diligence and consult your financial advisor before making any investment decisions.

Covid-19 has unleashed numerous market forces onto the global economy. The unprecedented crisis has presented a significant challenge in terms of demanding new and novel solutions. Inflation is now outpacing fixed-term rates, creating numerous problems for investors and ordinary citizens alike. Against this backdrop, can Bitcoin offer a potential solution? Some people see Bitcoin as the ultimate fix for a broken global economic system. Others consider it digital snake oil. Let’s take a look at the current landscape.

Bitcoin and Zero-Interest Rate Policies

Some economists have noted that bitcoin stands alongside gold and silver as the kind of investment that people tend to make when they are expecting disaster. Some people have widely touted Bitcoin as a panacea to the world's economic ills. According to its most vociferous proponents, bitcoin can shield humanity from just about any kind of economic catastrophe, even one of our own making.

But this level of optimism is far from universal. The level to which bitcoin can protect consumers and businesses from economic calamities is still up for debate. In Venezuela, where the economy has suffered a total collapse, cryptocurrencies have played a role at the local level in enabling commerce to continue. However, bitcoin has rarely been the first choice for people looking to cryptocurrency as a replacement for cash.

Thanks to the ongoing uncertainty created by covid-19, and the Federal Reserve’s pursuit of zero interest rate policies as a means of shielding the economy, most analysts expect bitcoin to take a dive once a vaccine is released. Bitcoin is an asset that does well in times of uncertainty as people look to protect themselves from an unexpected nosedive in the economy.

Options for Investors

Bitcoin is not the only asset that traders like to invest in when things are looking bleak. If a market crash on the horizon is a very real possibility, many pundits have suggested that investors should buy bonds over stocks and shares. This is one possible way that investors can shield themselves from the impacts of inflation. But while some bonds and bond funds look more stable than stocks on paper, the unique market conditions we are currently facing mean that we might have to rethink some of our assumptions. 

For example, the specific impacts that covid-19 is having on the economy are highlighting the weaknesses of bonds, while minimising what is usually their strengths. Currently, investors can expect weaker cash returns while harvesting more benefits from increase liquidity.

The other ever-popular investment option is real estate. However, as the 2008 financial crash demonstrated, real estate is still susceptible to the same market forces as every other asset. Since the crash, property investment has lost its appeal for many. As a direct result, some investors have begun to see assets such as bitcoin as more viable options.

A Growing Global User Base

Bitcoin has been steadily growing in popularity for the last decade or so. What once initially seemed like a niche technology that would only be of interest to a select group of enthusiasts is rapidly gaining acceptance as a potential alternative to the fiat currencies we currently use. Spending bitcoin is generally not quite as convenient as spending regular cash. However, the range of products and services that you can purchase with bitcoin is constantly increasing.

As the cryptocurrency market in general grows, bitcoin always benefits. This is partly because of marketing. Bitcoin is by far the most well-known cryptocurrency, but it is also due to the special status that bitcoin holds; just as the US dollar holds a special status amongst world currencies, bitcoin is special amongst cryptocurrencies. If you want to trade cryptocurrencies, you will usually have to start by purchasing either bitcoin or Ethereum. These are known as entry coins, as they provide investors with an entry point into the market.

The most compelling evidence of a growing acceptance of Bitcoin amongst consumers is the growing number of businesses willing to invest in Bitcoin infrastructure. This infrastructure includes payment terminals for brick-and-mortar stores that enable customers to pay with bitcoin on their smartphones almost as easily as they would pay with a bank card. You can even use bitcoin to play casino games with many of Australia's most popular online casinos. You can click here to find a list of the best online casinos in Australia. Many of these now accept Bitcoin as a payment method.

Money ultimately only has value because we agree that it does. If we all collectively decided that Bitcoin was the currency we were going to use, that would be that. Of course, we are a very long way from the point at which Bitcoin is accepted as a world currency by most of the world. However, there is no denying that Bitcoin is gaining ground. Not only is it now being accepted by businesses and organisations that previously had little interest, but it is continually becoming easier for ordinary people to use.

No matter how big the Bitcoin network gets in terms of users, there is a hard cap on the total number of coins that can exist. The network protocols make it impossible for more coins to be mined than the network architects intended. These protocols also ensure that new bitcoins are mined at a consistent rate. This rate-limiting makes bitcoin immune to some of the issues that can potentially affect fiat currency. This hard cap lends a lot of the ability to the Bitcoin network, especially as it grows. It does not make bitcoin a perfect economical solution, but in conjunction with the growing user base, it is increasing investor confidence.

Bitcoin and the 2020 Election

If there is one major threat to the stability of the US dollar right now, it’s the 2020 election. The world has already witnessed how the tweets of one man can have very real consequences for the economy and stock market. But even Trump's tweets are nothing compared to the economic shock wave that will tear through the world economy in the run up to results day, and possibly beyond depending on the result. Because of the US dollars’ special status, any significant shockwave to the US economy is going to ripple around the entire globe. All eyes are currently on Washington; no one is quite sure what to expect, and this is assuming the result isn’t disputed like it was last time. The kind of constitutional crisis unleashed by a disputed US election would make the last four years seem tame in comparison. In times of market turmoil, Bitcoin does well. 

Inflation is on the rise, and the US national debt is edging towards $30 trillion. Even the most cautious and conservative investors are starting to worry. However, whether Bitcoin could be their saviour or not remains an open question. It is certainly becoming a more viable and reliable asset to invest in. But it still doesn’t offer the security that some would like.

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