Why Buying Bitcoin Is a Smart Hedge Against Inflation

Why do people buy Bitcoin (BTC) to hedge against inflation? And what does hedging against inflation mean? And can cryptocurrencies be used as a tool to protect your wealth? Let’s dig in.

In the world of finance, there’s a buzz around BTC as a way to protect your wealth. But what does this all mean, and why do some people consider it a hedge against inflation? Why are people buying Bitcoin?

Bitcoin is a digital currency, or a cryptocurrency. It has the highest market capitalisation of any cryptocurrency (meaning more peopel own it than any other crypto). Unlike traditional money issued by central banks, BTC operates on a decentralised network, which means no one controls it or manipulates it. It is thought of as digital gold – scarce, secure, and independent of any government or financial institution.

The inflation problem

Let's also understand inflation. Inflation occurs when the general price level of goods and services rises over time. When inflation kicks in, your purchasing power decreases. You have the same amount of money coming in, but everything you want to buy is more expensive.

This means you can buy less of what you want today than you could yesterday.

In the last 12 months in particular, inflation measured by anyone's standards has risen hugely.

People in capital cities are finding life so expensive that they are fleeing for regional centres. Australians are making jokes about heading to the nearest foreign exchange, cashing out in Yen, and escaping to Japan. But maybe there is an alternative: Bitcoin.

Central banks play a role in inflation. They can print more money, flood the economy, and reduce the value of each dollar. During times of crisis (like the recent pandemic), governments injected trillions of dollars into their economies. While this helps keep things afloat, it also dilutes the value of existing money.

Bitcoin’s unique feature: Limited supply

This is where Bitcoin offers an alternative. Unlike fiat currencies (like the Dollar or the Pound), BTC has a fixed supply. There will only ever be 21 million BTC in existence. No more, no less. This scarcity makes it resistant to inflation.

Think of it as a collectors' item. If everyone suddenly wants it, the price skyrockets.

Similarly, as more people recognise BTC's value, demand increases. But the supply remains fixed, creating upward pressure on its price.

Why Bitcoin is a hedge against inflation

Fixed Supply

Bitcoin’s scarcity protects it from central bank money printing. When dollars lose value, BTC holds steady, theoretically.

Decentralisation

No government controls BTC. Even if your country’s economy stumbles, BTC remains outside the realm of whatever the government and central banks are doing. That way, the price of Bitcoin may hold steady while a country’s economy crumbles.

That’s not to say that Bitcoin price never falls. In fact, the Bitcoin price may fall while a country’s economy gets strong. But because Bitcoin operates separately from governments and central banking, then investing on Bitcoin is a way of “splitting risk”. Or, another way to say it is "hedging your bets".

Global acceptance

More businesses and individuals accept BTC as payment. As adoption grows, its value strengthens.

Historical performance

Over the past decade, BTC has outperformed most traditional assets. Even during economic turmoil, it has held its ground.

But wait, is inflation really a threat?

Depends who you ask. Some economists believe inflation won’t be a problem much longer. Others think a little inflation might even be beneficial. Some think it will send countries into recession and is disastrous for normal people trying to pay bills.

Holding some BTC is a method some people are using to back up their finances, just in case. It is worth researching and looking into buying Bitcoin as inflation continues its march skyward.

In summary: Buy BTC in Australia to hedge?

Bitcoin isn’t just for tech-loving investors. It’s a hedge against inflation, a digital asset with real-world implications. It could be a way to protect your money in an ever-changing financial landscape. Buying Bitcoin is a way to “split risk” as well as to invest on the idea that the prices will keep rising over time.