Article contributed by Isaiah McCall. Follow them on Medium here.
I’m a simple man.
When I’m thirsty I drink.
When I’m hungry I eat.
When I notice that the currency a society uses has steadily devalued for at least half a century causing mass coping and an overall decline in the quality of living for most people, I buy crypto.
So you could say I’m “hedging against inflation.” But that’s not really what I’m doing. If you really wanted to hedge against inflation you’d buy gold, stupid.
“Gold actually has properties — you can use gold for all sorts of things. People value gold for the metal. Nobody values bitcoin for the bitcoin; they value it because they believe that they can exchange it for something else.”
— Peter Schiff, guy who would trade his wife for gold
Gold is the only thing that has been proven, time and time again, to maintain its purchasing power through centuries of human history. It has real utility. At least, all this used to be true. Today it’s wrong. Dead wrong. Gold is only a slightly better inflation hedge than Bitcoin.
Truth be told, they both don’t protect you from inflation.
Everyone today is completely confused as to what inflation is. And the problem is if you don’t understand this simple point, then you’re not going to understand the long-term value of cryptocurrency, gold, or even stocks.
Here’s what you should know.
Crypto is NOT a hedge against inflation
Cryptocurrencies like Bitcoin and Ethereum aren’t hedges against inflation, they are hedges against the debasement of fiat currency. Let me explain.
Inflation isn’t the printing of money. That’s a symptom, yes, but the main factor of inflation is supply and demand. Broken supply chains cause inflation, pandemics cause inflation, droughts in South America cause inflation, and wars in Eastern Europe cause inflation.
You get the idea.
When there’s a low supply and high demand inflation happens. It’s like a law of nature.
Now, when the Fed prints money it doesn’t directly result in inflation; it results in the boosted price of stocks and crypto because central banks are buying those assets with that money. But they don’t just print money and buy assets, the banks also have more incentives to loan it out to people like you and me who want to buy things.
A reminder that printing too much money certainly can aid in inflation, as was the case in 2020
Sure, you shouldn’t print too much money — like the Federal Reserve printing 1/4 of the total supply of dollars ever— but the main factor in inflation isn’t the printing of money, it’s the supply and demand of goods.
The gold crowd doesn’t understand this either. They cheer on “inflation, inflation, inflation,” but they’re wrong too. They think that a rampant inflation crisis will cause the price of gold to go up. This isn’t the case. When it comes to inflation, nothing can protect you.
Gold is at a lower market price than it was ten years ago
Gold is less volatile than Bitcoin. This much is true.
It’s only down 2.53% on the year while BTC is down over 50%.
However, gold is becoming a shit investment. Dogshit, even. If you had invested $1 into each of the following categories in 1802 this is what your returns would look like:
Gold is acceptable as a compliment to your stock portfolio. That’s it. The only excuse for making it your primary asset is by being schizophrenic with a hardon for armageddon.
It’s probably why Peter Schiff’s top videos are “Stock up this could get very ugly” or “We’ve never seen anything like this” or “We’re about to suffer much worse than I thought.”
(Granted I do love Peter’s economic analysis but disagree with his conclusion that gold is best)
The only defense for gold, and it’s a good defense, is that stocks necessitate intelligence to win on your investment. Gold is more straightforward in comparison. Sure, gold doesn’t make you rich but it is a smart option to consider if you have a sizable amount of money that you want to secure for the next generations.
So what about Bitcoin and Ethereum?
Crypto protects you from the debasement of fiat currency. Déjà vu anyone? So, what does this mean?
It means that as you hold Bitcoin or Ethereum — and as the US economic system continues to rob people of their purchasing power through bouts of money printing, failure to increase wages, and laughable savings yields that should make people riot — your purchasing power will grow.
Because crypto is the first economic system with austerity built into the protocol.
The economic systems of both Bitcoin and Ethereum are clear and defined. They are unchanging. There is a limited supply of both currencies, and as their systems continue to evolve and find new use cases, more pressure will mount on their prices.
If gold is a great compliment to a portfolio, then cryptocurrency is the upgraded version of that. It’s dynamic, more accessible, and there’s no cheating.
“Crypto is spawning a generation of programmers that understand the fundamentals of game theory, finance, and governance.”
— Naval Ravikant, guy who would trade his wife for crypto