One of the main attractions of cryptocurrencies, especially Bitcoin, for investors is their perceived resilience against inflation compared to traditional fiat currencies like the Canadian dollar.
While Bitcoin technically undergoes a form of inflation as new coins are mined, its supply mechanism ensures that the rate of inflation decreases over time. Approximately every four years, the creation of new coins is halved, gradually reducing Bitcoin's inflation rate. This built-in mechanism, known as "halving," ensures a diminishing supply of new Bitcoin, which contrasts sharply with the often increasing supply of fiat currencies.
High inflation rates for traditional currencies can drive individuals to seek out alternative stores of value, such as digital currencies. Holding Canadian dollars in a savings account may result in a loss of value over time, prompting individuals to explore more stable alternatives. Bitcoin and other cryptocurrencies like Ethereum provide a compelling alternative. The dynamics of the Bitcoin market are intricate, but there are certain inherent features of the currency designed to mitigate inflationary pressures.
Bitcoin’s supply and value are not subject to governmental policy manipulations such as adjusting interest rates or increasing the money supply for economic interventions. This independence from centralized control is a significant factor in its appeal as a hedge against inflation.
Scarcity plays a crucial role in creating an inflation-resistant store of value. Bitcoin is capped at 21 million coins, with around 19 million already mined. Every ten minutes, miners validate a new block, adding 6.25 bitcoins to the network.
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