The CEO of Coinme, Neil Bergquist, has spoken on the key differences in the effects of inflation on Bitcoin and Dollars.
In recent years, the purchasing power of consumers has been eroded by the steepest inflation in four decades, which has also exposed the drawbacks of storing wealth in fiat currencies and eroded the value of cash savings.
Neil Bergquist, the co-founder and CEO of Coinme, asserts that inflation is the concealed expense of living in dollars. “The value of your bank account balance decreases over time if you maintain an inflationary asset, such as fiat currency.”
The benchmark federal funds rate is between 5.25% and 5.5%, as the Federal Reserve has aggressively increased interest rates to combat excessive inflation. Even though higher rates are intended to moderate the economy and decrease inflation, inflation has remained persistently high, failing to reach the levels many analysts had anticipated at the beginning of 2024. It is currently at approximately 3.5%, significantly higher than the Federal Reserve’s 2% objective.
Investors have been increasingly interested in assets that can serve as a hedge against the devaluation of the US dollar and the rise in prices in this inflationary environment. This has contributed to the growth of demand for Bitcoin and other cryptocurrencies as alternative repositories of value.
The Drawbacks of Fiat Currency in an Inflationary Environment
The currency’s value is diluted as it is printed, and there is no limit to the quantity of fiat currency that a central bank can print, in contrast to Bitcoin’sBitcoin’s fixed supply of 21 million. The Federal Reserve has been increasing the production of dollars in recent years to assist in financing government expenditure and stimulus measures.
“If the United States government decides to print additional dollars, which it frequently does, the value of existing dollars will decrease, and the supply of dollars will increase.” Bergquist elucidates that the price of finite assets, such as bitcoin, frequently rises.
“The total number of bitcoins will never exceed 21 million,” he clarifies. “Unlike fiat currencies, it has a fixed supply that cannot be altered.” Individuals and governments must establish a new policy to increase the supply. A politician can’t be elected with a novel concept and subsequently modify it. It is hard-coded into the Bitcoin blockchain.
A limited degree of inflation can promote economic growth by incentivizing spending and investment over saving, which is why most modern fiat currencies are established with an inflation target. However, the present cycle of interest rate hikes indicates a reality consumers are now experiencing with each purchase: inflation has become unmanageable.
Real wages and purchasing power are diminished when inflation exceeds a certain threshold. The purchasing power of a given quantity of income or wages has decreased due to increased prices of goods and services. This is because each dollar buys less than it did previously.
The Operation of Bitcoin as a Value Store
Bitcoin and other assets with restricted supplies are positioned to better retain their value in this context of fiat currency devaluation.
Neil Bergquist observes that tangible assets typically appreciate during inflationary periods. “This encompasses tangible assets, stocks, and real estate.” Despite many individuals maintaining that it is intangible, Bitcoin has demonstrated that it is a tangible asset. It is tangible because bitcoins are incapable of being replicated or imitated. It is distinctive. You possess a distinctive property that has historically appreciated, particularly during hyperinflation. It is also tangible, as it can be redeemed for USD at any time, and there is a daily trading volume of tens of billions of USD.
This increase in value is evident in the long-term trajectory of Bitcoin. Over the past decade, Bitcoin’sBitcoin’s price has experienced substantial growth despite intermittent periods of volatility.
For instance, the most recent inflation surge occurred primarily between 2021 and 2023, with rates in the United States reaching a peak of 9.1% in 2022. The price of bitcoin increased from approximately $32,000 in January 2021 to $42,000 in December 2023 during the same period. It has since continued to grow, primarily due to the introduction of cryptocurrency exchange-traded funds. The price has increased by approximately twofold year over year as of July 2024, with a current value of roughly $60,000.
“Neil Bergquist observes that the price fluctuates, but when it enters a down cycle or trough, its low is nearly always higher than its former low.”
“The lowest price of bitcoin in any given year is higher than the previous year’s low.” It fluctuates, but it has been increasing in general. Therefore, it is advisable to refrain from making dynamic decisions based on the volatility of the day or the week. It is crucial to maintain a long-term perspective, as individuals perceive it as a store of value.
Bitcoin’sBitcoin’s volatility is most effectively comprehended in the context of its appreciation over extended time frames. The capped supply trajectory of Bitcoin provides an advantage to holders during periods of market instability and inflation.
Potential Future Directions of Bitcoin
Bitcoin is distinguished from conventional reserves such as gold by its technological foundation, based on a well-established blockchain, and its role as decentralized digital money. The Bitcoin code is executed by a distributed network of computers, as there is no central issuing authority.
Bergquist asserts that Bitcoin is a digitally native form of currency that has resolved the issue of trust in a digitally native world.
In the future, persistently high inflation may encourage an increase in investors drawn to scarcer assets, such as Bitcoin. Nevertheless, the adoption of cryptocurrencies for payments and commerce is occurring independently of macroeconomic conditions.
Coinme participates in this trend, serving as the power source for Bitcoin ATMs that enable customers to convert cash into cryptocurrency and cryptocurrency into cash at more than 40,000 locations throughout the United States. Furthermore, Coinme allows users to purchase and sell cryptocurrency within their digital wallet by employing a debit card.
“We are observing numerous enhancements to the user experience, which eliminate the necessity for customers to comprehend the technical challenges of blockchain to interact with cryptocurrencies,” asserts Bergquist. “We at Coinme simplify that complexity for you.”
