One of the most popular uses for cryptocurrency is something everybody should be doing: creating a hedge or protection against inflation.
Inflation is the slow destruction of the value of fiat currency over time. Most people have no choice but to accept the devaluing of their hard-earned money, because they need government-issued cash to pay bills and buy food.
When combined with solutions like crypto-debit cards, cryptocurrency can provide an alternative to fiat currencies. More importantly, it can give average people something that was formerly only available to the rich; or large corporations, an effective hedge against inflation.
How Cryptocurrency is a Better Hedge Than Gold
A hedge is an investment that retains more value, or grows faster than the rate of inflation. If you put your money into a hedge, you’ll have more buying power than those who hold just government paper.
Many wealthy people hedge to preserve their wealth, hedging is the basis of hedge funds that many rich people invest in. Unfortunately, average people have often had a hard time hedging because they did not have the money to do so.
Traditional hedges against wealth such as gold can be effective, but they have serious limitations. Gold will retain its’ value, but you cannot take gold down to the grocery store and buy food with it. Nor can you use gold to pay the electric bill or the car payment.
It is possible to get a prepaid Bitcoin Visa debit card right now you can use at almost any grocery store in the United States. Companies like Cryptopay have such cards available right now. Organizations such as TenX and Centra are planning even more versatile debit cards that will be able to convert several altcoins into fiat currencies.
Those cards will even enable users to turn cryptocurrencies into cash through ATM machines and cash registers. They also plan cryptocurrency payment apps for smartphones that can be used at cash registers in brick and mortar stores.
Cryptocurrency As A Hedge Against Inflation
Some cryptocurrencies have demonstrated the ability to gain value at a far faster rate than fiat currencies.
The Coin Price of Ethereum increased by 5986.43% or $498.67 between November 29, 2016, and November 27, 2018, Coinbase reported. The Coin Price for Etherum was $7 on November 29, 2016, and $498.67 on November 29, 2017.
During the same period the price of Bitcoin grew by 10430.79% or $10,541.90. The Bitcoin Coin Price was $734 on November 29, 2016, and $10,542.07 a year later.
During the first 10 months of 2017, the U.S. rate of inflation hovered between 1.6% and 2.7%, Trading Economics reported. That means a US dollar lost around 2% or 2¢ in value during the same period.
The price of an ounce of gold grew by 8.99% or $106.80 during the same period. Gold was trading at $1,170 an ounce on December 1, 2016, and $1,283.85 an ounce on November 29, 2017.
The picture here is clear, those who bought Ethereum and Bitcoin last year and held it made a lot of money. Persons that owned gold made some money. Those who kept their nest egg in United States dollars probably lost money, even if they put their money in accounts such as money markets.
The rate of return on the average money market account in the United States ranged between .03% and .06% in 2017, Value Penguin reported. That means people who put their money into Money Market Accounts and kept it there for the last year lost money.
Cryptocurrency is not the safest investment around, but it is an excellent hedging mechanism that people with extra cash should look into. Everybody needs a hedge against inflation and altcoins are making hedging available to everyone.