How Does Inflation Affect Cryptocurrencies?

Inflation – It will affect cryptocurrencies or not is quite impossible to say because of the simple fact that cryptocurrency existed for only 10 years. So, counting cryptocurrencies under Inflated assets will do no justice. Digital assets are inflationary by nature and are used as legal tender where it is recognized but it is also important to remember that crypto mining does not make any meaningful contribution to GDP.

What is the concept of inflation?

In simple terms, inflation can be termed as the process where currencies like the dollar, euro, bitcoin, etc. lose their market value over time. This becomes the main cause of the rising in good prices, and cryptocurrency is one such product that is designed to experience predictably lowest inflation rates.

Inflation can stay longer in the market for –

·  Imbalance in supply and demand in the labor-oriented ecosystem

·  Increased prices of real estates

·  Increased entry price of products that are expected to rise further

·  Devaluation of currency with a downward exchange rate

The crypto experts of a Cryptocurrency development company say – price rises can be the reason behind a decrease in purchasing power. With high inflation, it will take more and more units of currency to make purchases for a certain amount of goods and services as well. Inflation could affect businesses and customers as it makes our money less valuable in the market.

Can crypto be affected by inflation?

When compared to fiat currencies, cryptocurrencies are less likely to be affected by inflation due to the fact that their records are stored in a blockchain network. According to the Best blockchain developers in Kolkata, cryptocurrencies like Bitcoin experience inflation with increased mining of the asset. If fiat money is under the high inflation, then investors might turn towards digital currencies, and currencies like Bitcoin and Ethereum can be a great alternative to investors interested in diversifying their portfolios.

However, all types of cryptocurrencies are not designed like Bitcoin, for example – Stablecoins is one such popular category of crypto which can be pegged along with fiat currencies like the dollar. This form of digital money is quite useful and is low in volatility as well. But if a Stablecoin is held against a dollar then your investment can be affected by inflation and might lose value as well.

Concluding the facts, from the economic concept inflation is quite complex and can be both good and bad for the financial system. Inflation remained stable during the pandemic condition and kept businesses grounded, but inflation is expected to rise with the increase in spending in the coming years.