A general increase in the prices of products and services in an economy makes the real value of the currency lower, since, by raising prices and not wages, people buy fewer products with the same resources. This forces them to spend more money due to the uncertainty that said currency will continue to decline and capacity, therefore, will also be reduced, even more than what had already sunk.
The cryptocurrency market has proven to be an effective medium for those investors who, in the long term, want to combat inflation. That is why these, mainly in countries that present hyperinflation, have invested in bitcoin to avoid the fall that the euro, the dollar have experienced, as well as all the currencies that have suffered the effects of inflation that we are experiencing today.
And this is one of the uses of assets such as bitcoin, as there are economists who affirm that this asset can function as an alternative investment system, and can act as a hedge against this inflation.
Consequences of inflation on the economy
While it is true, inflation is the excess of demand, produced by the same products and services, causing companies to increase their prices if the supply of these does not grow in the same way. This indicates that money is worth less, encourages spending more and increases the amount of money in circulation, thus decreasing purchasing power.
If in an economy demand increases a lot, but supply does not grow in the same way, there is a shortage, driving the price of products. To reduce the price of these products, we must increase the supply in such a way that it reaches a new point of equilibrium. However, while this supply does not grow and demand continues to increase, the increase in prices causes consumers to lose purchasing power.
Well, this is the main effect that inflation has on consumers. Now, inflation has other very negative effects on the economy.
Some of the effects of inflation on the economy and economic agents are the increase in wages for a time; it discourages imports; the currency is devalued; financing costs increase; there is damage to creditors and, one of the most relevant, discourages investment in the medium and long term, since investors are uncertain that the value of the currency will continue to decline.
Cryptocurrencies: a good tool for countries with inflation?
The cryptocurrency market has not stopped growing around the world. In Latin America, this market has grown notably in recent years, especially in those countries that have suffered significant inflationary episodes.
Many people who live in countries with inflation have seen higher returns when investing in bitcoin or any other cryptocurrency. And these, like many economists such as Aarón Olmos, director of Olmos Group, consider that cryptocurrencies are an adequate vehicle to face the loss of purchasing power.
Bitcoin is a deflationary asset, will it outperform gold?
Bitcoin, according to what some economists say, is a deflationary asset, which can be used as a store of value, especially in the long term.
Well, this asset is growing so much that some consider that it may soon surpass the gold market, since the same investment bank has observed that a part of the money that is invested in gold, in recent times, has begun to move to bitcoin.
Thus, there are a few arguments that any investor should know.
The most important is that, despite the fact that bitcoin may seem like a rather risky option due to its high volatility, and for many it is a digital currency that lacks stability and confidence in the short term, the reality is that, just as it can suffer devaluation , within days it can recover and even raise its value above what it was previously.
And, in short, we are talking about a very interesting asset, without a doubt, but just as dangerous and that, if we want to invest in it, we must know.