Cryptocurrencies are digital or virtual tokens that use cryptography to secure their transactions and to control the creation of new units. Cryptocurrencies are decentralized, meaning they are not subject to government or financial institution control. Bitcoin, the first and most well-known cryptocurrency, was created in 2009.
Since their creation, cryptocurrencies have been on a wild ride. In 2017, Bitcoin reached an all-time high of $19,783.21 per coin. However, since then the value has fallen dramatically. As of February 5th, 2019, one Bitcoin is worth $3,483.54. This volatility is due to a variety of factors, including global economic conditions, regulatory uncertainty, and speculation.
Cryptocurrency is still a relatively new phenomenon, and as such, its effects on the global economy are not yet fully understood. However, one thing that is clear is that cryptocurrency is highly sensitive to inflation.
Inflation occurs when the cost of goods and services in an economy rises, leading to a decrease in the value of money. This can be caused by a number of factors, including an increase in the money supply or a rise in the price of goods and services.
Inflation has been a major issue for many countries around the world, and it is also starting to have an impact on cryptocurrency prices. In Zimbabwe, for example, the annual rate of inflation is estimated to be around 231%. This has caused the price of Bitcoin in that country to increase from around $10,000 at the beginning of 2018 to over $17,000 by the end of the year
Cryptocurrency is particularly vulnerable to inflation because it is not backed by any government or central bank. As a result, its value can fluctuate significantly depending on prevailing economic conditions.
For example, in countries with high levels of inflation, the value of cryptocurrency can plummet as people lose faith in it and turn to more stable forms of currency. Conversely, in countries with low levels of inflation, the value of cryptocurrency can rise as people become more confident in its stability. In Venezuela, the annual rate of inflation is even higher, estimated to be around 1,600%. This has caused the price of Bitcoin in that country to increase from around $2,000 at the beginning of 2018 to over $11,000 by the end of the year.
Thus, it is important for investors to be aware of the level of inflation in their country before investing in cryptocurrency. Otherwise, they may end up losing money if the currency’s value decreases significantly.
While cryptocurrency is not immune to inflation, it is still seen as being a more stable investment than most other forms of currency. This is because the supply of cryptocurrency is fixed, meaning that its value cannot be diluted by increasing production. In addition, cryptocurrency can be stored digitally and used anywhere in the world, making it a more global form of currency.
In conclusion, cryptocurrency is highly sensitive to inflation and its value can fluctuate significantly depending on the level of inflation in a given country. Investors should be aware of this before investing in this new form of currency.