Why Bitcoin Can Fight Inflation and Help the Economy
The price of goods and services increase slowly over time. We are all used to this phenomenon and most of us don’t really question it. The fundamental concept of modern finance can be summed up with one basic saying: “A dollar today is worth more than a dollar tomorrow.”
It may seem like this constant increase in prices is a normal function of free markets. In fact, what most of us don’t realize is that it’s not prices that are increasing. It is the purchasing power of our fiat money that is actually decreasing. This happens because the Central Banks of nations have untethered their currencies from gold. They have given themselves the ability to print money without anything backing it up. ‘Money’ is just a good like anything else and therefore follows the rules of supply and demand. As the supply increases, the price or ‘purchasing power’ of fiat money decreases over time. In fact, the average lifespan of fiat currencies is only 27 years. The British Pound is the longest serving currently at 317 years; although it has lost over 99% of it’s value over time. Over a long enough time horizon, fiat currencies trend towards zero.
Bitcoin is a Deflationary Currency
Bitcoin is designed to be deflationary so the purchasing power should increase over time. In a world that uses Bitcoin as a medium of exchange, a unit of any good or service can be purchased for less Bitcoin in the future than at present. This paradigm shift has cascading effects for the way we live and invest our money. Today, most people do not have access to the best financial products and managers because they do not meet the requirements. The Accredited Investor laws in Canada are very archaic and discriminatory. They prevent everyone from gaining access to the best investments. With Bitcoin, no longer will the disenfranchised feel like they don’t have access to traditional financial markets. They would easily be able to follow the simple strategy of buying and holding Bitcoin and know that their hard-earned wealth will not erode over time.
Bitcoin Supports a Fair Society
Furthermore, this ability to simply buy and hold Bitcoin will allow people focus on what they are good at. Not everyone will need to be a financial expert, spend time buying and selling financial products, or paying someone to do it for them. When everyone can focus on what they are good at and trade with others for the things they need, everyone benefits. This simple economic concept is known as ‘Comparative Advantage’. Often time, it is discussed only at the macro level. Countries should only produce the things they are good at and trade with others, creating a net benefit for both countries. This concept also works well at the micro level in transactions and interactions between individuals. The necessity to constantly ‘beat the market’ or simply keep up with inflation is removed from the economic equation for so many people. By investing in Bitcoin and holding for the long term, people can focus on what they are good and create a net benefit for society as a whole.
Learn more about Bitcoin as an Inflation Hedge in Toronto
At The Coin Shack, we preach a long term approach to our clients precisely for some of the reasons discussed above. Come in and learn more about how investing in Bitcoin will help hedge against inflation and protect you from ever-increasing prices!