Bitcoin as a Hedge Against Inflation

A hedge against inflation is an asset or investment that maintains or increases its value over time while protecting against adverse price fluctuations.

Inflation is used to describe the decline of a currency’s purchasing power over time, meaning that the same unit of currency used to purchase a basket of items today will purchase fewer items in the future. 

Inflation can be viewed as a measure of rising prices of goods and services in an economy. Check out the table below from our “What is Inflation” article to see how prices for certain items have changed between 1960 and 2021 in the United States:

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While inflation is generally considered to be a positive attribute of a healthy economy, it is often unwise for people to hold their savings in cash due to cash losing purchasing power over time. 

This has a lot of market participants turning their hard earned money into store of value investments like stocks, bonds, crypto, bitcoin or precious metals, among others. 

If you’re unfamiliar, for an asset to be considered a store of value, it should be expected to hold its purchasing power over time, meaning that it should either remain stable or increase in value.

Assets considered to be good hedges against inflation are called “hard assets”, because they hold value over time. There are several important properties linked with hard assets:

• Scarcity – A limited supply means that greater demand will likely push prices up
• Accessibility – The market will value and accept the asset
• Durability – Assets will continue to garner demand over time

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If you would like to learn more about what makes Bitcoin a good store of value, head over to our “What is Bitcoin?” and our “Store of Value” pages located in our Learn Center for a deeper dive. 

If you are interested in learning more about other cryptocurrencies, you can also visit Kraken’s crypto guides page and check our cryptocurrency prices.