Let’s do a refresher that never hurts. What is inflation really?
Inflation is a generalized and sustained increase in prices. Therefore less purchasing power with the same money you had in your wallet before.
That is, the money value of individual currencies (dollar, euro, yen) decreases.
In other words, if 2 apples cost 1 dollar, after a few months the same 10 apples cost 1 euro and 10 cents: it means that there has been inflation ( very high, 10%).
Is it good or bad for the market? It depends …
If inflation is under control and that is not too high then it can be a positive factor, because it stimulates the production of goods and services.
But if it rises too quickly, as is happening in the US and Europe now, then it becomes a serious problem. In fact, investors tend to move their capital to those countries where inflation is lowest.
Above all, people bring home fewer food and shopping items (with the same salary) and those who sell goods or services will sell less than before.
Although there is another aspect that perhaps not everyone considers. Inflation is good for those in debt because the value of the money they will have to pay back will be much less than what they have borrowed.
For example, if I have a 1000 dollars mortgage and then inflation rises to 5% it means that after one year the real value of my mortgage will be 1000 – (1000 * 5/100) = 950 dollars.
In short, inflation is needed for the economy, but like all things, it must be there with an equal balance and not as high as it is now.
So, in my opinion, it is right to prepare yourself to cope with all this. Today finance is within everyone’s reach and it is easier than doing it with bricks (houses). Considering that today house prices are no longer as safe as they used to be.
While some businesses can afford to simply raise prices, not suffering from increases in raw materials, energy, and services. Many of us are left without immediate means in comparison.
Especially the workers and office workers remain strangled by this mechanism. But also freelancers… and small craft businesses.
Can Bitcoin and cryptocurrencies, in general, help us with inflation?
BITCOIN AND CRYPTOCURRENCIES VS. INFLATION: CAN THEY HELP US?
Now I’ll explain how things stand. In theory, yes, Bitcoin should help counteract the loss in value of money. How?
As has been the case for years, for example with Gold:
– You invest a part of your savings, for example, 10 thousand dollars, in Gold Futures, which is the financial instrument that represents the value of Gold.
– In five or ten years, even if inflation has eaten 5% or more of the value of money, you will recover it with the recovery value of Gold.
– For example, if you had invested 10 thousand dollars in gold in 2015, today you would have 15 thousand dollars. Because it made a performance of 50%.
– Then you would have written off the value lost due to inflation. OK?
– In theory, therefore, the same thing should happen with Bitcoin. In fact, even though Bitcoin has taken a huge dip from its all-time high in July, to around $30,000, if you bought it years earlier it would still be super profitable and therefore more than repay inflation.
WHAT HAPPENS IN PRACTICE WHEN PURCHASING FINANCIAL INSTRUMENTS?
In the end, Bitcoin is not very different from other financial instruments. The fact is that, as with Gold, it is thought that its value will continue to grow and then grow again.
Basically, it did as well as most precious yellow metal that exists.
However, this is what could happen in practice.
– You must have a lot of capital to be able to afford to keep it inactive on an instrument.
– Second, it must be substantial enough to create a profit (after tax) to repay what you lose by purchasing goods and services with inflation galloping.
– With inflation like it is now, according to experts’ calculations, each family will spend around $3,000 more each year.
– This means that with 10 thousand dollars placed on Gold it would not be enough, because in a year it is impossible to make 50%. If you look at the example above, it made that performance within 5 years.
– It could happen on Bitcoin or other cryptocurrencies this is very true: because some instruments have made staggering percentages.
– But the harsh reality is that when you buy a financial instrument, even one like Gold, you never know what could happen.
If you placed $10,000 in gold in 2010, five years later you would have found yourself with a nice minus 40% equity. That is 6 thousand dollars.
While if you bought Bitcoin in October or November 2021 now you would find yourself with a minus 50% in just 6 months.
Do you understand now what I mean?
So can we defend ourselves with cryptocurrencies from such high inflation?
Yes, but you must have very high capital and the patience to leave it on those digital financial tools for years and years. At least ten.
With Gold, you are more likely to make a profit every year, but the capital it takes is even greater because the fluctuation is smaller. So it is less dangerous as an investment but also less profitable.
Basically, if you are poor and you have no capital, you are still screwed. If, on the other hand, you have economic possibilities, you can defend yourself from an economic market that is so crazy and expensive for everyone.
So there is no solution?
This I believe is not true. A great method is to learn to trade cautiously. It takes years to get good results. But when you reach good levels you will not only be able to defend yourself against inflation, but you will also know how to make your savings increase.
In this way, you have excellent opportunities to conclude each year in the single figures, then gradually in the double figures (10% or 15% or 20%).
If you have courage and skill, you can also learn to trade with ever-larger capital.
As a part of those earnings, you can decide to keep them for a decade on Gold or Bitcoin or other cryptocurrencies and then create a nice umbrella for an inflated and increasingly expensive market
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