Posted on 05/31/2021 6:48:10 AM PDT by Browns Ultra Fan
There is a lot of noise about cryptocurrencies like Bitcoin and Ethereum being hedges against inflation.
Here is Bitcoin against core PCE prices YoY. Only if inflation is truly transitory and declines.
Ethereum as a hedge against inflation? Ethereum started its run-up after Q1’s inflation report. And has experienced extraordinary volatility, not inflation-hedging mojo.
If, however, one’s risk scenario is of the Thunderdome variant characterized by the simultaneous collapse of a currency and its payments system, then there is no better hedge than private, digital money.
In short, Bitcoin’s and Ethereum’s inflation hedging mojo isn’t working. At best, it’s muddy.
(Excerpt) Read more at confoundedinterest.net ...
Yeah, the crypto market cap went up by 2 trillion in one year, then went down by one trillion the last week of that year.
No they are not an hedge against inflation.
Plus there’s nothing of intrinsic value there. They are a speculation medium, not a currency.
“They are only a hedge against the collapse of the US Dollar, not inflation.”
I don’t agree with that either. Like I said what backs up crypto? Nothing of intrinsic value. And coins like Doge are fiat because there is not a limit to how many can be “minted”.
At least with equities you are part owner in an actual company. With hard assets, there is the hard asset. With crypto there’s NOTHING.
And I’m not saying there isn’t money to be made, there is but it’s through pure speculation.
Context is important.
I bought my first bitcoin in 2013. I paid $110 per unit.
That unit is worth $36k and change right now.
My math might be off....but I think that beats inflation at about 73% per year.
During a similar period, my gold averages 4.27% per year. My silver averages 4.49% per year. My stock index funds are averaging 11.42%.
So, pretty much any investment (in a general sense) will increase ahead of inflation over time.
If you are simply looking at the past two weeks, Crypto is not keeping up with inflation.
You have to look at things in the proper context and time frame.
Nothing of of intrinsic value.
It is all psychological.
There is no underlying tangible commodity to cryptocurrencies. A better hedge against inflation would be a tangible commodity that will remain in high demand thru inflation and into recession.
Many crypto’s have value, just because you don’t see the value of a network doesn’t mean it’s worthless. Last year I made a modest purchase of CargoX (CXO), that modest investment has, to date, been a 75x return. I guess the government of Egypt requiring it’s use for all import/export bill of ladings might have something to do with that. India is piloting the program currently, they could be next. Rumors are Singapore as well. I guess I’ll hold onto my “Worthless” Backed by “Nothing” investment that somehow isn’t a hedge against inflation based on an article that cherry picks data during a mid cycle shakeout.
That’s why I mentioned equities. Don’t compare crypto to dollars, compare them to other investments that do have intrinsic value.
That said the dollar is much better than currencies, it hasn’t inflated and deflated like the crypto market cap has. Crypto market cap was 834 billion 1-2018, it deflated to 110 billion in one year. That’s an 87% drop in one year. Then in two years (5-11-2021) in inflated to 2.558 trillion. From 5-11-2021 to now it deflated by trillion dollars to 1.588 trillion. That’s a 39% drop in less than two weeks.
That dollar has NEVER done that.
Ping!
“ There is no underlying tangible commodity to cryptocurrencies. A better hedge against inflation would be a tangible commodity that will remain in high demand thru inflation and into recession.
Wisdom doesn’t debate as the dollar is destroyed.
Buy both.
“ That dollar has NEVER done that.
No, but it loses a steady 3% of purchasing power a year - year after year, decade after decade.
If you’re happy there, good luck to you!
Yes... not yet a currency. The general acceptance has yet to materialize. And governments are just beginning their attacks on the medium of exchange.
Only an idiot would put their dollars in a shoe box and then do a Rip Van Winkle for decades and then be surprised their shoe box dollars could not buy as much today as they did back then.
When you sell your stocks or house acquired decades ago, do you get the number of dollars it was was valued at then? NO! YOU GET NUMBER OF DOLLARS IT IS VALUED AT IN 2021, NOT 1990. Is your employer still paying you the same hourly wage or salary you got in 1990? NO! They are paying you 2021 inflation adjusted dollars. If you provide a service, do you still charge the same dollars you did in 1990? NO, YOU CHARGE 2021 inflation dollars. And so forth for all services and assets priced in dollars.
That's why those idiotic gold bug charts showing the dollar "losing" 97% of it's value since 1913 are so deceitful and misleading.
The "gold bugs" have always annoyed me. For decades I have heard their spiel yet they are always so eager to take my "soon to be worthless" dollars in exchange for their precious gold.
Yes, you get back dollars valued in today’s current value.
If you invested in the stock market and did average - about 9% - you would net ~6% after losing purchasing power.
If you invested in stocks at a bad time, your return may be zero and you average a loss of -3% per year in purchasing power.
Totally bogus/flawed analysis.
Each company stock is constantly being adjusted to inflation. If they are a seller of services, they charge MORE DOLLARS for those services if the dollar inflates. If they are a seller of commodities, they sell their product for MORE DOLLARS if the dollar inflates. If they have real estate holdings, the price of that real estate is valued at MORE DOLLARS if the dollar inflates. All dollar inflation is in the current value of the stock so to say you lost X after losing purchasing power is flawed.
“ Each company stock is constantly being adjusted to inflation
The long term average return of the US stock market is just less than 9% annually.
Every dollar of value is worth 3% less on average and you need more dollars to purchase the same goods and services.
It is why goods and services cost more than in previous years.
If you get back 9% more dollars than you invested, you are 6% ahead after inflation.
Simple as that.
Why would you think I’m happy with the dollars value declining?
Imagine those who bought crypto three weeks ago. For everyone who’s made money in crypto, someone else lost it.
“ Imagine those who bought crypto three weeks ago. For everyone who’s made money in crypto, someone else lost it”
Yes markets work that way.
I know two people who invested at the top of the stock market in 2000.
Investing is never a three week holding period - or you magnify risk.
...I don’t agree with that either. Like I said what backs up crypto? Nothing of intrinsic value...
The same is true for any fiat currency ... including the US dollar.
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