Understanding Nature of BTC and Inflation & Can BTC be a Solution?
Hi, dear fellows from last week I’m observing some posts here in the Bitcoin discussion about BTC and Inflation and Questions on the BTC model as an Inflation Hedge I have already replied to some of them but still there is a need for complete analysis as what is inflation then causes of inflation then the comparison of BTC to these problems and then a conclusion so in this topic, I will try cover most of that part but still there as my analysis is much strong starting a topic might help to understand all the stuff in a better way.
What is Inflation?First of all basic definition of inflation is the “increase in the price of goods and services in a certain time is called inflation”.
If the price of a particular good or service increases that can’t be considered inflation as an overall increase in prices of goods and services is called inflation especially the day-to-day usage of goods and services.
Now let’s understand this concept in easy views inflation is the devaluation of money for example back in 1970 my grandfather told me He bought a Buffalo for
110 RS let’s see what I can buy with
110 RS in 2022 2
packet of Lays and if I want to buy a
Buffalo now I twill cost around
150k RS.
That is called inflation.
SourceTypes of inflation are divided into terms but basically, there are 3 types of inflation as I can’t explain it here topic will be very lengthy (You can do a google search on this topic individually) so in short, these 3 types are also 3 major causes of inflation so these are
• Demand-Pull Inflation
• Cost-Push inflation
• Built-in Inflation So these types are also the causes of inflation. As inflation is a worldwide problem but inflation in a particular region or country is caused by the Monetary Policy and Fiscal Policy of the country. BTC can be the solution to Inflation for that is how to let's understand. As BTC features resolve the Flaws in these policies for Civilians.
Monetary Policy:So, first of all, let’s understand what monetary Policy is Monetary Policy is a term used in the economy of any country where they control the supply of money and how they can control the supply of money in the market and the printing of new currency. In simple short, this policy decides the total supply of currency.
How Monetary / Fiscal Policy is a major cause of the Inflation?In most of the country, the root of Inflation is the Monetary Policy as the Government prints the excess amount of money to fulfill their local deeds as to pay salaries to start new Development projects and etc. etc.. Understand this point government prints money supply is increasing and the government has no assets to back of that supply. Now Excess amount of money in the market causes an increase in prices of the goods and services.
Similar to the Monetary Policy the Fiscal policy impact the value of the local currency as considering the example of Sri Lanka and Pakistan the Leadership of these countries made wrong fiscal policies for debit and international trades which caused inflation on a major scale.
Let’s understand how BTC is anti-Monetary Policy:BTC is anti-monetary as in monetary policy excess supply causes inflation. If we accept BTC as a legal tender or medium of exchange then as BTC has a fixed supply of 21M the supply is controlled and automated not by the government so that will be the solution. Also, lead to financial freedom. Limited Supply will automatically control the prices of the services and goods as the supply is now constant for obvious reasons the major cause of inflation can be avoided.
This is a solution for you try to understand who is having problems with inflation you and me as we are saving money so I’m proposing this solution to your savings how BTC can help you to avoid inflation that is not financial advice.
It means that we can’t eliminate inflation but we can avoid it through our investments can BTC be a worldwide inflation solution? I don’t know.
Import Export Inflation:Import and export can be also a major reason for inflation as every country need to trade with other countries for different types of good and services as countries import Fuel, Crops, and different raw material and also products which can cause inflation to let me explain this point how to consider that in international market fuel prices increases as increased after the COVID all the fuel products + Services showed a boom in price as Fuel plays important role in resources of any country impact of that fluctuation will lead to the inflation.
As for trade we use the currency for now USD is the most powerful and sustainable currency (That’s not the fact that’s just considered) so maximum countries use USD for international trade. The value of the Local currency is decided on the basis of the exchange rate for different countries as I have already explained that USD is considered as the most powerful currency so in terms of USD Local currency value is decided.
Now let’s discuss a simple Point what if the price of USD increases in the local market due to demand that will automatically put pressure on supply and USD price will increase that means local currency value will fall and that is going to cause a massive impact on the international trades and other currency exchanges which means a straight slope of inflation due to uncontrolled price of USD.
Example: Pakistan Sri Lanka. The heavy inflation increase in these two countries is just because of the unstable price of USD and also the Fuel prices fluctuations many other reasons as wrong Policies.
Is there any Solution for that?Yes, that’s possible to minimize or eliminate that type of fluctuations as USD is not a transparent and sustainable currency there is no control over the value and supply of the USD. The US government can print more money and they are printing more and more which is causing a global economic crisis that shows the USD is an inflationary currency as now there is a need of Power Assets that can be used for international trade nonmanipulative more sustainable and transparent. Bitcoin can be solution lets understand how.
SourceHow Bitcoin is a Solution?Bitcoin is a solution for most of the problems, as its anti-monetary which means that the supply for the currency is already fixed and can’t be changed which can’t lead the Supply pressure inflation or devaluation of the currency. The demand and Supply to the market is also set by a model of Block Mining reward which restricts the excess supply of the currency in the market. BTC is devisable as 1 BTC = 100M Satoshi which means we can implement BTC on Local level freedom of Finance as well where BTC for the reserves can be stored and can also be devisable for the Services exchange.
The market Follows the P2P system where capital behind the currency decides its market value. For international trades, the PNL / Realized price can be used as a bottom line which will control the fluctuation as well as the inflation problems as well while international trades.
BTC as the Universal Asset / Currency?I’m not saying that eliminating all the local currencies and considering BTC only can also cause some problems but point is to recognize BTC as an asset as a medium of exchange for cross-country trades that can be beneficial for both trading countries. In simple words, BTC should be used as a reserve currency that can fix a lot of economic problems which will be more reliable. If BTC is recognized as a Global asset then the fluctuations can be controlled as prices can be more sustainable. The local currency can grow independently without the influence of the USD. Following things may get easy.
• Currency Exchange Problem
• International Trades
• Sustainable reserveIs now BTC Stand on as Hedge against the inflation:Hope so Before the start of 2022 things were different market was at its peak and that was really an impressive feat many analysts proposed BTC as the best Hedge against inflation that true and false.
• BTC is anti-inflationary in a specific period of time as long term for example Halving to Halving or ATH to ATH this specific Area strongly proves that BTC is anti-inflationary as BTC shows a consistent upward move on every ATH its means BTC has a secure cycle of the Value.
Example:
2011: iPhone 4s Price: 165 BTC
2012: iPhone 5 Price: 52 BTC
2013: iPhone 5s Price: 5 BTC
2014: iPhone 6 Price: 1.6 BTC
2015: iPhone 6s Price: 2.7 BTC
2016: iPhone 7 Price: 1 BTC
2017: iPhone 8 Price: 0.19 BTC
2017: iPhone X Price: 0.13 BTC
2018: iPhone XR Price: 0.15 BTC
2019: iPhone 11 Price: 0.06 BTC
2020: iPhone 12 Price: 0.05 BTC
2021: iPhone 13 Price: 0.01 BTC
2022: iPhone 14 Price: 0.04 BTC
• Where if we consider BTC as the Short term Solution then Short Term inflation can’t be controlled using BTC as in Bear Phase or in the current situation BTC is melted down below 20 which is below the Realized price and can’t be considered as the anti-inflationary solution.
Drawbacks
That’s True BTC is too good and can be a solution for inflation if we consider our problem in a long phase but that’s true as well there are so many problems in the way of BTC to be a Global asset. The biggest issues are as follows.
Centralized Finance / Banks:The overall finance in the world is manipulated by the banks on the national and international level which is a major reason for inflation as the distribution of money is manipulated. Let me consider that Everyone wants to accept the BTC as a Legal tender but do you really thinks Banks who are in power let us do that? Centralized Finance Institutes is going to be a major resistance against BTC.
People prefer Centralization:Most of underdeveloped countries and their civilians prefer centralization where they use 3rd party to act as a trusted body for their investment. People of these countries always go with centralization where they feel secure under an organization that should be responsible for the security of their investment. That’s the fact of Under Developing Countries. So there People are not going to support the Decentralization of assets they are going to resist it.
BTC Bear Phase a question on being a Solution:Every Image has two sides a bright one and a dark one that’s a fact similarly the Bear phase is also a major problem when it comes to proving BTC as a Strong Hedge against inflation. In the bear phase, the maximum time the market crashes below its PNL / Realized price which put me silently to say that BTC is anti-inflationary at least for a period of time.
Conclusion:No doubt that BTC can be a better alternative but the implementation of this model is currently impossible as the features of the BTC are dominated by the Resistance against the BTC. Our Backward countries are not ready to accept this technology. BTC is a good solution but in the future where we can discover a better implementation of it. For now, we have to struggle with Inflation but we can use BTC as our primary preference to Savings which is going to be a global asset.
Note:
That’s all for now I don’t know what important points I have missed and what were non needed but that all I think about the BTC model for now. All this information is collected from Blogs, Videos, and Interviews and this Post is the Summary of my analysis.
The purpose of this post is to educate about inflation and BTC and to start a discussion to learn more about it from the experienced members of the forum and what they think about BTC as an alternative or a solution to inflation problems.
