Inflation is currently soaring to the highest levels for decades and forex traders who typically buy and sell fiat currencies are turning to cryptocurrencies en masse to hedge against it. When the prices of goods and services rise and the purchasing power of money falls, why is crypto seen as a viable alternative for traders?
The first reason is that inflation is viewed as an ongoing risk for forex traders as it decreases the value of their holdings and trades. This leads them to seek out assets that can protect them from inflation-based risks. In the past, hedges typically involved commodities such as gold, but cryptocurrencies are now becoming a more popular option for traders.
This is because the inherent characteristics of Bitcoin (BTC) make it an attractive asset during times of inflation. Bitcoin is deflationary, which means its buying power generally increases over time due to a slowly depreciating supply of coins. Traders in countries where fiat currencies are often unstable turn to crypto for value as the impact of hyperinflation can be damaging.
Now that the rate of inflation has surged to 8.5% in the United States, traders are looking for some sort of safe haven, which wise investments in crypto can provide. You can find the best brokers for bitcoin trading by navigating to a financial consultant’s website and comparing brokers. Selecting a trusted broker will enable you to trade bitcoin and other currencies with the peace of mind that your account will be secure. You can even open a free demo account to test out features.
With the inflation hike set to continue for the foreseeable future and central banks such as the Federal Reserve set to intervene more regularly to increase interest rates to combat the issue, currency markets may be more volatile than normal. This is a great time to at least look at crypto as an alternative, especially as it won’t be manipulated in the same way as fiat during times of inflation.
This is another reason why traders prefer to trade bitcoin. Due to it being independent of government input, it is not as affected by the risks that plague fiat currencies and equities on the stock market such as day-to-day economic and political developments. Cryptocurrencies are not linked to fiat or controlled by a specific central bank.
The decentralized nature of bitcoin also means it can easily be bought, sold and transferred, which is a level of agility that is valued highly by traders when inflation is prevalent in major economies. The supply of cryptocurrencies is not explicitly controlled by sovereign nations either, which is an advantage even when compared to other hedge commodities such as gold.
That’s not to say bitcoin is always the best option for forex traders as it does have its own issues with volatility and unpredictable performance. A solid investment strategy requires a trader to weigh the benefits and risks of each asset, and for forex, in particular, to decide whether cryptocurrencies are useful for diversifying portfolios during times of economic and fiscal uncertainty.