Inflation has always been an immortal enemy for fiat currencies. It is affected by the weakness of your nation’s economy. No matter what you do, if your economy is not stable, you will see inflation in the market.
To stop inflation, people have tried several methods. Things like increasing the interest rate on loan hiked product prices, and a low unemployment rate is the things of the past that have helped fiat currency from inflating.
However, the time has changed and calls for methods to fight back the inflation rate. Today, when the COVID 19 virus is on the loose, it has stimulated the risk of inflation. Hence, people are placing their hopes on the Cryptocurrencies and Gold as a hedge against inflation.
What is an Inflation hedge?
An inflation hedge is an investment that is considered to protect the decrease in the value of the traditional currencies. Inflation hedges typically involve investing in assets expected to maintain their value over the years, or which might increase in value for a limited time.
How does inflation hedge work?
Inflation hedging can help to protect the value of the assets. Certain assets seem to be working fine, but at the times of inflation, they might be sold at a price that may accrue a loss.
On the other hand, assets that are considered an inflation hedge asset are being invested in traders and investors to stop themselves from accruing losses.
Which asset is a better hedge against inflation?
It depends on market performance. You have to go through the market to see which assets have the potential to stand against inflation. As we speak now, there are currently only two assets that qualify for a hedge against inflation: Gold and Bitcoin.
After the crisis rained down by COVID 19, only these two assets were able to perform. Let’s look at their nature and see what made them the prime choices for the hedge against inflation.
Gold has always been one of the dominant assets that have secured a profit for the traders. Invest in Gold, and you will never regret it. You can even see that when the assets are performing below their par mark. Gold price is constantly rising every day.
Here is why Gold is one of the pillars to fight inflation.
- Gold can help fight back decreased price evaluation of money-
Gold is the only asset that has kept its price value. To be precise, the price has seen a boost during COVID 19. This performance is proving itself as a hedge against inflation.
- Gold promises return in the most fragile market-
It has been seen that Gold has performed outstandingly better whenever there is inflation than the bonds, equities, and commodities. After seeing its past, people are convinced that they can put their trust in Gold.
- Gold acts like reserved currency-
Seeing how Gold is performing better than ever. People can use Gold to store their money for escaping inflation.
Bitcoin has proved itself a safe haven for the traders even during COVID 19 pandemic. The bitcoin price that was reduced to a mere $3000 in the first week of the international lockdown period has now reached a peak price evaluation of the year.
Here are the reasons that make Bitcoin a hedge contender for inflation.
- Purchasing power-
The purchasing power of the Bitcoin is not going to drop. When Satoshi Nakamoto created Bitcoin, he limited the number of Bitcoin to 21 million in response to the flaws in the financial system.
In the time of the crisis, when people are losing their jobs and going bankrupt. People and companies are looking to convert their assets into money. Fortunately, Bitcoin offers trade 24X7 throughout the year.
The current pandemic has proved that borders do exist in the financial transaction. For the first time, we are experiencing the problem of not being able to transfer assets across the borders. In this respect, Bitcoin has performed far better than other assets.
Both Gold and Bitcoin are the prime contenders for acting like a hedge against inflation. It is up to you to decide which will suit you better or on which asset you feel confident to invest in. If you are interested in Gold, then invest in Gold. If not, then you can always use invest in Bitcoin or any other Cryptocurrencies.
Chris Mcdonald has been the lead news writer at complete connection. His passion for helping people in all aspects of online marketing flows through in the expert industry coverage he provides. Chris is also an author of tech blog Area19delegate. He likes spending his time with family, studying martial arts and plucking fat bass guitar strings.