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Is it possible to use cryptocurrencies to fight inflation?
Inflation is one of those economic phenomena that is always present in our day to day. However, there are times when this can get out of control and can become a real problem for our personal finances.
There are several ways by which you will be able to combat inflation, people usually do it by buying strong currencies such as the dollar or the euro. However, these are not exempt from inflation, an example of this is the recent increase in inflation in the United States.
This is why investors and many others have turned to cryptocurrencies as a way to hedge against inflation. However, there are many doubts about this and today, I will tell you a little more about it.
The volatility of cryptocurrencies
On many occasions, people can have great doubts regarding investments in cryptocurrencies and this is mainly related to their volatility. It is no secret to anyone that if you invest $10 in bitcoin within a week you may have 20, or you may have nothing. And that is why many do not dare to invest, but the truth is that if you know how to do it, investing in cryptocurrencies is a wise decision.
Is it a good idea to invest in bitcoin?
When you hear the word cryptocurrency, the first thing that probably comes to mind is bitcoin. The truth is that this is the most popular (and most valuable) cryptocurrency in the world. Also, of course, she was the first to appear.
However, just because it is a very popular cryptocurrency does not mean that it is free from fluctuations or volatility. And it is that bitcoin is one of the most fluctuating cryptocurrencies in the world.
However, to determine if it is a good way to protect yourself against inflation or not, you have to review a little how it works. Inflation is usually caused by an increase in the money supply, that is, if before there was 1 million dollars in circulation and there were a million products for sale at one dollar each, that defined its price.
However, if suddenly there is no longer a million dollars but 1.5 million and there are still 1 million products, due to supply and demand, that product will increase in price. However, unlike fiat currencies in which governments increase or decrease the money supply at their whim or convenience, bitcoin has a limited number of currencies. That limit is 21 million bitcoins and as that limit is reached, the value of the currency will grow.
This means that despite the fact that bitcoin presents fluctuations, with the passage of time its value will tend to rise. Therefore, it is a good way to safeguard your capital from inflation.
And what about the other coins?
In general, all cryptocurrencies work in the same way, they have a certain amount of maximum tokens available. Everything is managed based on supply and demand, therefore, just as they can go up, they can also go down.
In any case, if you want to protect yourself from inflation, the ideal is that you resort to already established hard currencies. Since these have no risk of disappearing, which will keep your capital safe.
Coins such as Bitcoin, Ethereum or the Binance coin are some of the best options to invest.
Liquidity in the world of cryptocurrencies
Liquidity is a very important factor in the world of cryptocurrencies and that is why it is the concern of many people. But this is not something to worry about, at least if your intention is to invest among the strongest cryptocurrencies. They have very good liquidity, therefore, you will not have any problems.
Many investors turn to cryptocurrencies to hedge against inflation
Today it is a reality, many people today trust cryptocurrencies more than the currencies of their countries. This means that there are many people injecting money into cryptocurrencies.
Many people can resort to buying gold or silver, metals that for many centuries have been one of the best forms of savings. However, not all people have the possibility of saving in gold, which leads them to do so in an equally interesting option, cryptocurrencies.
In fact, according to a note from Bloomberg, he has claimed that around 10 billion dollars were withdrawn from funds in gold. This has caused the price of it to fall. But the most important thing is that a good part of that money has ended up in bitcoin and other cryptocurrencies.
More and more countries are looking favorably on cryptocurrencies
Another thing that makes cryptocurrencies a good option to protect you from inflation is that countries are becoming more and more flexible with this issue. Until a few years ago this was a taboo subject, however, today it is more flexible.
Most countries have a neutral stance regarding cryptocurrencies, while in a few they are prohibited. There are even countries like El Salvador in which bitcoin is a legal tender in the country.
So, can I protect myself from inflation with cryptocurrencies?
Of course, yes, cryptocurrencies are a very good way in which you will be able to protect yourself from inflation. And not only protect yourself, but you can also earn money with them. So, if you are looking for a way to counteract inflation in your country, without a doubt, cryptocurrencies are an excellent alternative that you cannot miss.