Almost 40% of all U.S. dollars in circulation were printed within the last year. The repercussions this could have on working-class citizens has many Americans worried, and rightfully so. As consumers around the world seek a hedge against soaring inflation, Bitcoin shines bright as a decentralized asset with an inflation rate guaranteed to decrease over time.
The U.S. Dollar
The U.S. hit an unexpected high in the inflation rate this past year, reaching 2008 levels due to large money-printing programs headed by central banks in response to the economic impacts of COVID-19. Without a proper barrier against inflation as the government continues to pump egregious amounts of fiat currency into circulation, holding U.S. dollars is eroding the pockets of Americans.
Russia has also announced that it will be completely removing the U.S. dollar from its National Wealth Fund reserves due to sanctions imposed against Moscow. If other countries follow Russia's lead and move away from the U.S. dollar, the implications could be crippling.
Inflation Around the World
This 13-year high of inflation rates in the U.S. has led to Deutsche Bank issuing a warning that these rates, if unchecked, could have globally detrimental economic effects. These same inflationary implications are occurring across the pond in the UK, which faces an edge up in prices as they ease out of pandemic related restrictions.
Even before COVID-19 wreaked global havoc, inflation left untamed was destroying entire economies. A prime example is Venezuela, which suffered from a hyperinflation rate of 10 million percent in 2019. With an essentially worthless currency, many people have since turned to Bitcoin as salvation. Cryptocurrency adoption rates are sky-high in Venezuela due to citizens using it as a store of value independent from their unstable government.
El Salvador: Bitcoin as a Legal Tender
El Salvador has made a bold move by being the first country to pass legislation that could make Bitcoin legal currency. Following an economic crisis, the country had adopted the U.S. dollar as their national currency in 2001, a move that has made them susceptible to U.S. imposed economic systems and sanctions. President Nayib Bukele, regarding Bitcoin’s market cap of $680 billion, claims that just 1% of this amount being invested in El Salvador could increase the country's GDP by 25%. With 3 in 10 Salvadorians lacking a bank account, this would promote financial inclusion and simplify international money transfers, an important source of income for many residents who have friends and family living in the U.S. Bukele is already making headway on this plan, beginning with the opening of a geothermal well that will power Bitcoin mining with “very cheap, 100% clean, 100% renewable, 0 emissions energy from our volcanos,” as he recently promoted on Twitter..
“In the short term this will generate jobs and help provide financial inclusion to thousands outside the formal economy," says Bukele. As the world watches these changes unfold, we could be seeing the first steps to achieving a truly global currency.
African countries are anticipated to follow suit with the continent’s own cryptocurrency boom and widespread adoption. This is in large part due to Nigeria’s tricky exchange rate policy, inflation, and a large number of unbanked adults. Bitcoin has offered refuge from these issues, resulting in its growing popularity in many countries within Africa.
Implications for Bitcoin
El Salvador’s announcement has made waves in legitimizing the real-life uses of the cryptocurrency in doubtful eyes around the world. Simultaneously, with persisting concerns of inflation in several countries, Bitcoin presents a solution that can not only solve these issues, but also help populations using unstable currencies to find security in a truly decentralized currency away from the hands of their government.
Due to Bitcoin’s 21 million supply cap, it cannot be debased, which is the reasoning behind the inflation hedge. It is mathematically proven that 1 Bitcoin will always be worth 0.00000476% of the total number of Bitcoins. On the other hand, it is not possible to claim how much gold or USD there is in the world. For this reason, Bitcoin acts as an insurance policy on monetary irresponsibility, without a counterparty credit risk. In order to change the Bitcoin protocol that sets its cap at 21 million, a consensus would be needed by tens of thousands of nodes and miners (which play a key role in achieving and maintaining decentralization), an impractical and highly unlikely scenario, essentially guaranteeing that Bitcoin will not be devalued.
Bitcoin is making its way to becoming the first truly global currency, creating an optimal opportunity for early investment. This widespread economic adoption is exactly what the market needs in order to rise to the $1 million valuation milestone recently predicted by influential investor Anthony Pompliano. Should he prove to be correct, a $35,000 investment in a single Bitcoin now could turn into a $1 million dollar return. For an even lower upfront cost, investors can purchase Bitcoin mining equipment and reap consistent benefits by mining Bitcoin with quality hardware that can last up to a decade with the proper maintenance services.
Regardless of the route you choose to take, Wattum can help you navigate your options and make a knowledgeable investment with an expert team specializing in crypto mining, management services, data center construction and more. As Bitcoin’s immunity to uncontrolled inflation propels the coin to new heights, mining presents a golden opportunity to generate a stable store of wealth.