Do you know why cryptocurrency, especially Bitcoin, is considered as an alternative during a financial crisis and a hedge against inflation? The year 2020 taught us that no matter how well you plan for your investments, you can never be sure about it. Since the pandemic has affected all the financial markets, investors turned towards crypto.
Even though many people didn’t like cryptocurrencies, they accepted crypto as a better alternative during the coronavirus pandemic. Many developing economies and financially backward nations are thinking that crypto can solve their banking and financial issues.
Here you will know about the impact of Crypto adoption on inflation levels. Before that, let’s understand what inflation is.
Maybe you have heard or read about inflation many times before this, but do you know what exactly it means. In simple terms, inflation refers to the devaluation of a currency. When the level of inflation of a currency increases, it loses its value, also called the purchasing power.
For instance, if you were able to buy one gram of gold for $60, you need more than that when there is an inflation rise. So, inflation is a measure of the purchasing power of a currency and
Cause of Inflation
One of the primary causes of inflation is excessive demand of a commodity that surpasses the supply. It’s a key reason, but there are several others, including loan defaults, poor fiscal policy, political issues, rise in public spending, an excess supply of the currency, etc.
Government plays an important role in the inflation level because it has control over the monetary policy. Therefore, several nations adopted cryptocurrencies as they can eliminate many problems from the economy.
Impact of Crypto Adoption on Inflation
Now that you understand what’s inflation and how it can take away the purchasing power of a consumer, take a look at the adoption of cryptocurrencies on inflation in some countries.
Do you know that the national currency of Venezuela has devalued more than a thousand percent against the USD? As a result, the inflation rate has skyrocketed, and it has become a critical situation for the citizens.
People are struggling with their financial conditions with such price devaluation. So, the citizens are looking for a better alternative and adopting cryptocurrencies. A recent report shows that there are more than 20,000 places where you can spend cryptocurrencies in Venezuela.
Due to transparency, low transaction cost, and faster payment, cryptocurrencies have become the focal point of Venezuela’s citizens. Even though cryptocurrencies are volatile, it’s better than their national currency Venezuelan Bolivar.
Argentina is also struggling with high inflation due to political unrest and poor fiscal policies. Argentinian Peso declined more than 53% in its value last year. Another key reason behind the inflation is due to loan defaults. As a consequence, more people are adopting cryptocurrencies to deal with inflation.
Moreover, the capital city of Argentina is also a global destination for vacationers. So, many people visit here and spend their holidays. They want to pay their bills through cryptocurrencies, which has also increased the adoption of cryptocurrencies in Argentina. Bonus Aires has become one of the crypto hotspots in the world.
Cryptocurrency is becoming increasingly popular in the African Continent due to rising inflation. Many economists predict that Africa will be known as a crypto-friendly continent. Since there is high inflation in several countries across Africa, cryptocurrency adoption can help them fight against inflation.
Apart from that, the number of crypto investors are also increasing in Africa. Many crypto investors use the Crypto Engine App for investing in cryptocurrencies. Moreover, governments are also trying to regulate cryptocurrencies that will drive more adoption of cryptocurrencies.
I hope you get to know about the impact of crypto adoption on inflation. Also, they can be used as better alternative investments for traditional investors. However, you cannot ignore the vulnerabilities and drawbacks of cryptocurrencies.