The United States, the Eurozone, the United Kingdom, among many other economies, are experiencing record levels of rising inflation as a result of numerous factors, including the massive quantitative easing programs they have been running since the start of the pandemic. of covid-19.
moscow, russia – march 10: a person walks in front of an electronic board showing the usa. uu. dollar and euro… [+] currency symbols at an exchange office in moscow, russia, on march 10, 2020. saudi-led opec and russia-led non-opec failed on friday to agree to cut further its oil production levels while riyadh offered massive discounts for its oil exports, oil experienced its worst price drop in 29 years. (photo by sefa karacan/anadolu agency via getty images)
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bitcoin has gained more than 13% in the last month and inflationary pressures seem to have fueled this demand. In economies currently experiencing runaway inflation, such as Turkey, Russia, Brazil, and Argentina, cryptocurrency adoption has increased significantly, according to data from blockchain data platform Chainalysis.
Investors in global financial markets are notoriously known for reacting to trends in oil prices and central bank policies. This week, US crude oil has risen more than 23% on concerns about pressure from the supply side as a result of the Russian-Ukrainian war and resulting sanctions. investors are expected to react to this increase. they could react by hedging their safe-haven positions like gold and bitcoin or by buying stocks that are benefiting from the rally in oil.
Last week, Russia’s invasion of Ukraine caused the ruble to fall 30% against the US dollar. With January inflation reported at 9.5%, Russia’s central bank raised the key lending rate from 9.5% to 20% to rein in runaway inflation. As a result, Russia’s bitcoin trading activity surged to a 9-month high, according to blockchain news site coindesk.
The global oil price rally started in April 2020 and is still continuing. In 2021, both US and Brent crude rallied more than 50%. this accelerated in 2022 with both markets rising a further 47% year-to-date. I expect higher oil prices to lead to higher commodity prices leading to higher inflation globally.
Although major central banks have slammed quantitative easing programs and are currently raising interest rates, cash savings have already been hit by high inflation and savers are looking for ways alternatives to store your wealth. Based on gold price performance since the beginning of the year, I can say that gold is winning the inflation hedging war against bitcoin, so far.
However, given the sanctions and censorship measures being put in place today to limit transactions with Russians and Ukrainians, it is easier for the retail sector to use bitcoin compared to gold and fiat currencies. This additional utility of bitcoin has allowed the Ukrainian government to raise funds for its military budget using donations of bitcoin and other cryptocurrencies.
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With a Nigerian inflation rate of 15.6% in January 2022, merchants looking to make international remittances turned to bitcoin as the naira exchange rate against the US dollar becomes increasingly expensive. According to a recent Reuters article, Nigerian merchants can escape the effects of currency devaluation by using bitcoins to store their value.
russia and ukraine are among the top 5 exporters of wheat, sunflower and corn in the world. These products are largely exported to North Africa and the Middle East. a disruption in its supply could cause food shortages, higher food prices and thus inflation.
To protect household budgets from the effect of this inflation, there is a strong likelihood that retail traders will hoard bitcoin as it has proven to be a reliable store of value over the last decade, despite being highly volatile. Bitcoin adoption in Middle Eastern countries experiencing high inflation and unstable autocracies has already accelerated significantly, according to blockchain news site coindesk.
It is prudent to note that bitcoin has been trading as an alternative asset showing a positive correlation with stocks such as US tech stocks prior to the Russian invasion of Ukraine. Bitcoin’s use as a hedge against inflation has yet to mature as its volatility erodes value consistency. With wider adoption, bitcoin could eventually become the de facto inflation hedge according to robert breedlove, founder and CEO of parallax digital.
disclosure: I own bitcoin and other cryptocurrencies.