As Inflation Hits 30-Year High, Top Deflationary Cryptos Set All-Time Highs, Too

by Tor Constantino | Published on Nov. 11, 2021

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If inflation continues to rise the unique attributes of certain cryptocurrencies make them a viable hedge against it.


Key points

  • The Labor Department has reported that October inflation surged at the fastest pace in three decades to 6.2% compared to last year.
  • After inflation data was made public, the top two cryptocurrencies -- Bitcoin and Ethereum -- jumped to all-time highs, supporting their narrative that deflationary coins are viable shields against inflation.
  • While gold is the "gold standard" when it comes to a trusted inflation hedge, there are attributes of Bitcoin that make it worth a look as well.

The U.S. inflation rate for consumer goods and services hit a 30-year high in October, representing a jump of 6.2% compared to the same time last year. This marked the fifth straight monthly increase of 5% or more, and it was the fastest annual surge since 1990.

Inflation seems to be everywhere

The Labor Department noted in its announcement that the price hikes were broad-based, with the largest increases occurring in the categories of energy, shelter, food, used cars and trucks, and new vehicles. And on a month-to-month basis, inflation increased a seasonally adjusted 0.9% last month -- representing a more than double increase from the 0.4% rise in September. Whether you believe the Fed Chair and Treasury Secretary that this inflationary trend is temporary, consumers are feeling it now and no one knows for certain when it will decline.

Bitcoin and Ethereum surge then sag after inflation data released

What is for certain is that after the inflation numbers were released at 8:30 a.m. ET yesterday, Bitcoin rose as high as $68,744 at 9:19 a.m. and Ethereum climbed to $4,848.61 at 11:14 a.m. Those levels were new all-time records for each digital asset. As of this writing, there was a bit of a pricing pullback for each with Bitcoin off about 4% from its top, while Ethereum dipped about 2% this morning from yesterday's peak.

Possible reasons for the price surge of those two leading cryptocurrencies are Bitcoin's fixed asset supply of 21 million coins, and Ethereum's recent move to limit its own supply following a major programming update called the London Hard Fork that occurred earlier this summer. Both features are deflationary in nature and position both digital currencies as effective shields against macro-inflationary pressures.

Why Bitcoin might be a better deflationary investment than gold

For millennia, gold has been viewed as the self-defining "gold standard" as an inflationary shield compared to various asset classes. That remains true today with more than $10 trillion invested in gold globally -- the price per ounce of which is up nearly 1% from yesterday. In comparison, at $1.2 trillion in current value, Bitcoin is still dismissed as a "bubble-class" asset by 74% of financial experts recently surveyed by Bank of America.

However, Bitcoin could be the best investment alternative to knock the reigning inflationary hedge from its golden throne, in light of these differentiating attributes for the leading cryptocurrency:

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  1. Physical portability: Billions in BTC can be carried in a secure crypto wallet that fits in a coat pocket, while 1 billion of gold bars is estimated to weigh about 24 tons.
  2. Transfer speed: Any amount of BTC can instantly be transferred from person to person, but not so with gold. This unique attribute results in lower transaction fees, elimination of settlement delays, and the removal of third-party intermediaries. During inflationary cycles, getting resources faster and at lower cost is critically important for consumers
  3. Global distribution: Any amount of BTC can digitally be moved to anywhere in the world with internet access. Conversely, the maximum amount of gold that can be moved across the U.S. border is $10,000. Larger amounts require U.S. Customs declaration and filing a FINCEN 105 form.
  4. Accessibility: All you need to buy BTC is a payment method, coin exchange, and internet connection. This allows the "unbanked" masses struggling with inflation or corrupt monetary systems the shot at economic equality. However, securing any amount of physical gold requires a more complicated process due to its lack of use, availability, and storage needs.
  5. Store of value (SOV): BTC has many of the SOV properties of gold such as scarcity, fungibility, proven appreciation, widespread acceptance…etc. While Bitcoin can't be turned into jewelry like gold, BTC has other unique features that distinguish it from gold. Bitcoin can be split into subunits much easier than any type of physical gold. Bitcoin can also be staked, instantly transforming it into an interest-bearing asset that can also be collateralized -- a feat that's much more difficult to do with gold. Bitcoin is much easier to convert to other assets compared to physical gold.

While no one knows when supply chains will unsnarl or inflation rates might moderate, we now know there are other protective investments to consider in addition to gold.

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