How does inflation affect crypto currencies?

Published in

CoinWind

3 min readSep 23, 2022

Introduction

We are currently facing an inflation surge where rates are rising in multiple countries worldwide. The annual inflation rate in the US has been the highest since 1981, instilling fear within the masses. To address this burning issue, we will explore the correlation between inflation and cryptocurrencies in this article, and whether DeFi is a great tool for you to hedge against inflationary rate spikes.

What is inflation?

Inflation typically refers to the increase in the price of your standard of living. While there is no guarantee of an increase in your earnings, this only means that you can afford to purchase lesser. This would also mean that your savings in your bank account for retirement or future purposes would not allow you to purchase what you have now if you don’t take strategic steps.

The link between inflation and cryptocurrencies

While it will make sense for inflation and cryptocurrencies to be positively correlated, due to the fact that a rise in inflation rates would give an individual more incentive to seek alternate storage of value, we did not witness such a trend. On the contrary, what we witnessed was a plunge in USD value in the crypto markets as inflation rates surge.

However, it is also important to also consider that inflation is not the only contributing factor to negative market movements and the fact that cryptocurrencies are still in their infancy where it has not experienced wide-scale adoption and regulation around the world. Additionally, cryptocurrencies can be seen to be resistant to inflation, due to their decentralized nature and supply cap. All in all, it is exciting to see how cryptocurrencies will transform and evolve in the midst of a tumbling global economy.

DeFi as a tool to hedge against inflation

There are many platforms such as CoinWind that may just offer the solutions to your problems, where DeFi products could be a great way to maintain and grow the value of your assets. DeFi has effectively solved many issues present in traditional financial systems, where its products are not only easily accessible but also offer highly competitive APYs. With the current inflation rate at around 8.5%, staking any token in our staking pools will even give you a surplus. For example, $ADA will give you an 18.97% APY, and DOT could give you a 16.69% APY.

Additionally, DeFi gives you the flexibility to explore different strategies with product offerings such as staking or liquidity mining, where both could be found on CoinWind. Therefore, users can decide on which strategy best fits their risk appetite before execution.

Conclusion

Leaving your money stagnant with inflation in mind, can be detrimental to the long-term value of your assets. I believe we all work really hard to earn our keep, let’s not waste it away and make the right steps to safeguard our assets.

Do note that all this article's values are accurate to the time of writing.