2022 Global Inflationary Pressures Drive Up Bitcoin Demand
The United States, Eurozone, the United Kingdom among many other economies are experiencing record levels of increased inflation resulting from numerable factors including the massive quantitative easing programs they have been running since the onset of the covid-19 pandemic
Bitcoin has gained over 13% in the last month and inflationary pressures seem to have spiked this demand. In economies that are currently experiencing runaway inflation such as Turkey, Russia, Brazil, and Argentina, crypto adoption has significantly increased, according to data from blockchain data platform Chainalysis.
Global financial market investors are notoriously known for reacting to trends in oil prices and central bank policies. This week, US crude oil has rallied over 23% on concerns of supply-side pressure resulting from the Russia-Ukraine war and the resulting sanctions. Investors are expected to react to this rise. They could react by hedging their positions in safe-haven assets such as Gold and Bitcoin or by buying equities that are benefitting from the oil rally.
Last week, Russia’s invasion of Ukraine led the Ruble to a 30% drop against the US dollar. With January inflation reported at 9.5%, the Central Bank of Russia hiked the key lending rate from 9.5% to 20% to control the runaway inflation. As a result, Russia’s Bitcoin trading activity rose to a 9-month high, according to Blockchain news site, CoinDesk.
The global oil price rally began in April 2020 and is still continuing. In 2021, both US crude oil and Brent oil rallied over 50%. This has accelerated in 2022 with both markets rising a further 47% year-to-date. I expect the higher oil prices to lead to a hike in product prices leading to higher inflation globally.
Even though major central banks have slammed brakes on quantitative easing programs and are currently hiking interest rates, cash savings have already been hurt by the high rate of inflation and savers are looking for alternative ways of storing their wealth. Based on gold price performance since the beginning of the year, I can say that gold is winning the inflation hedge war against Bitcoin, so far.
However, given the sanctions and censorship measures being implemented today to limit transactions with Russians and Ukrainians, the retail sector is finding it easier to use Bitcoin compared to gold and fiat currencies. This additional Bitcoin utility has enabled the Ukrainian government to fundraise its military budget using Bitcoin and other cryptocurrency donations.
With Nigeria’s rate of inflation standing at 15.6% in January 2022, traders looking to make international remittances have turned to bitcoin since Naira’s exchange rate with the US dollar is continually becoming expensive. According to a recent article by Reuters, Nigerian traders are able to escape the effects of currency devaluation by using Bitcoin to store their value.
Russia and Ukraine are among the top 5 wheat, sunflower, and corn exporters in the world. These products are largely exported to North Africa and the Middle East. A disruption in their supply could cause food shortage, higher food prices, and consequently, inflation.
Corn at $742, wheat up another 7% and oil at $114… #inflation pic.twitter.com/hh20BDYqry
— Growth & Value (@Growth_Value_) March 3, 2022
To protect household budgets from the effect of this inflation, there is a strong likelihood that retail traders will stockpile bitcoin as it has proven to be a reliable store of value over the last decade, despite being highly volatile. The adoption of Bitcoin in Middle East countries experiencing high inflation and unstable autocracies has already significantly accelerated, 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 equities such as US technology stocks before the Russian invasion of Ukraine. Bitcoin’s use as an inflation hedge is yet to mature as its volatility erodes consistency of value. With wider adoption, Bitcoin could eventually become the de facto inflation hedge according to Robert Breedlove, founder, and CEO of Parallax Digital.
Crypto Community Warned Against Fake Arbitrum Airdrops
Is Kava a Good Investment? Analyzing the Potential Risks and Rewards
The Arbitrum Community Demands Return of 700M ARB Tokens to DAO Treasury
Investing in Arbitrum (ARB): Is it a Smart Move?
Is BRISE a Good Investment? Here’s What You Need to Know
- April 2023
- February 2023
- January 2023
- December 2022
- June 2022
- March 2022
- February 2022
- January 2022
- December 2021
- November 2021
- October 2021
- September 2021
- August 2021
- July 2021
- June 2021
- May 2021
- April 2021
- March 2021
- February 2021
- January 2021
- December 2020
- November 2020
- October 2020
- September 2020