The Significance of Bitcoin’s Decreasing Inflation Rate
The inflation rate of Bitcoin has fallen significantly over the years and is now at least three times lower than that of the United States dollar (USD). With over 90% of BTC in circulation, the cryptocurrency’s inflation rate has dropped due to its fixed supply of 21 million BTC. The inflation rate decreases after every four years during the halving event, and as a result, it has been steadily declining since its inception in 2009. As of March 4, Bitcoin’s inflation rate stands at 1.79%, while the annual inflation rate of the USD in 2023 is at 6.4%.
Bitcoin’s Deflationary Model and Halving Events
Bitcoin’s deflationary model determines its inflation rate, which decreases post-halving events. The inflation rate is determined by the reward system for miners, which is split in half with each halving event. During the halving event, Bitcoin rewards for miners are reduced by half, and the number of Bitcoins produced through mining is halved, with the next event estimated to take place in May 2024.
The USD’s Inflation Rate and Bitcoin’s Decentralized Nature
In contrast, the USD’s inflation rate will likely rise as the currency’s value decreases over time due to excessive printing and the diminishing purchasing power of each dollar. Experts have also opined that Bitcoin’s inflation rate remains lower due to its decentralized nature, meaning the cryptocurrency can circumvent most political and economic risks linked with the USD.
The Debate over the Best Inflation Hedge Investment Option
The contrasting inflation rate between Bitcoin and the USD has sparked a debate over the best investment option and the perfect hedge. Bitcoin proponents argue that BTC is the ideal asset to protect against inflation, but its price has yet to reflect this claim amid rising inflation and interest rate hikes. Despite its potential as an inflation hedge, Bitcoin and the general cryptocurrency market have suffered significant losses amid the broader economic downturn. By press time, BTC was trading at $22,344 and facing threats of retesting lows below $20,000.