Mining, Opinion

Bitcoin Reinforced as an Inflation Hedge as US Dollar Holdings Drop

January 7, 2022

It’s the start of a brand new year, and Bitcoin is already garnering major predictions for 2022. President Nayib Bukele of El Salvador shared his own predictions that Bitcoin will not only hit $100,000 in the new year, but that at least two other countries will adopt Bitcoin as legal tender, as El Salvador did just last year.

These new year predictions follow the end-of-year optimism demonstrated by Cathie Wood, of Ark Invest Management, and Jesse Powell, CEO of crypto exchange Kraken, with price predictions of $500k and $100k, respectively, to wrap up 2021. A shift in the market is evident, with gold holdings growing significantly in the foreign exchange reserves of central banks worldwide, while there is at the same time a major drop in US dollar holdings.

The Lasting Influence of 2008

A central bank shift to gold is reflective of global concerns about the so-called dollar-based monetary regime, especially amongst emerging economies. Beginning with the 2008 market crash and following financial crisis, both central banks and public institutions began increasing gold holdings. The crash caused an outflow of funds from US government bonds, which subsequently resulted in the plummeting value of dollar-denominated assets. According to market analyst Itsuo Toyoshima, trust in dollar assets plummeted along with it.

A Hedge Against Inflation with a Growing Fanbase

Inflation in the United States has reached 6.8%, the highest it’s been in 40 years, and it seems that previously anti-crypto investors have decided to get busy. Thomas Peterffy, founder of Interactive Brokers Group Inc. and estimated to be worth around $25 billion, claims that having 2-3% of your portfolio in crypto assets is the way to go, just in case fiat “goes to hell.”

Peterffy’s firm also began offering clients the option to trade a multitude of cryptocurrencies, including Bitcoin, Ethereum, Litecoin, and Bitcoin Cash. The transition comes as a result of increased client requests for such an option, as the firm looks to add up to 10 more cryptocurrencies to this list in January 2022.

Ray Dalio, founder of Bridgewater Associates, also chimed in: “Cash, which most investors think is the safest investment, is, I think, the worst investment.” Dalio sees crypto investments for their potential as an alternative money, saying “cash is trash” amidst global developments where inflation erodes buying power.

Peterffy and Dalio aren’t the only billionaires scaling their crypto involvement. Claiming it a hedge against inflation, hedge fund manager Paul Tudor Jones also bought Bitcoin in 2021.

The Rise of Bitcoin City

Bitcoin’s move into mainstream acceptance is also supported by its merge with culture. The legendary Staples Centre, home to the Los Angeles Lakers and the late Kobe Bryant, and thus a beacon of LA and sports culture, will be known as Crypto.com Arena for the next 20 years after the Singapore cryptocurrency exchange signed a deal with AEG, owner and operator of the arena.

On top of that, El Salvador became the first country to adopt Bitcoin as legal tender under Bukele’s presidency in 2021, as a countermeasure to the growing inflation. El Salvador is now looking at commencing the construction of a Bitcoin City, in addition to issuing volcano bonds, both of which are planned for this year.

As investors steadily move away from the dollar and turn towards crypto, reinforcing its reliability as a hedge against inflation, their actions also shed light on current sentiment and status of the US dollar.

Heading into the new year, already accompanied by sky-high predictions and major developments in the crypto industry, it won’t be long before an urgency kicks in to enter the market and join in on the action. Whether it’s crypto mining equipment, facility construction, mobile mining containers, or a globally ranked mining pool, Wattum has a fully-serviced “in” that can get you started before the floodgates open.

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