Are Digital Assets A Good Hedge Against Inflation?
Date: July 18, 2022

Are Digital Assets A Good Hedge Against Inflation?

We all know that inflation is a threat to our economy and how we live. But while many people are concerned with the rising prices of goods and services, they don’t know what they can do about it. Fortunately, there are some ways to protect yourself against inflation if you’re worried about your nest egg drying up.

A diversified portfolio that includes digital assets like cryptocurrency is one way to avoid this issue since these assets cannot be devalued by governments or central banks.

If you’re wanting some alternative investment guidance from a Greeneville, TN, financial advisor, read this article and then give us a call to explore:


How does inflation impact consumers? 

As you may be well aware, inflation is caused by goods and services becoming more expensive. When this happens, a dollar will not buy as much, reducing the purchasing power of money. It’s caused by an increase in the supply of money relative to goods and services. 

The government can also cause inflation by printing more money than it produces in goods and services; this results in higher inflation rates than those associated with increases in production (known as deflation). A central bank has set up limits for how much extra currency can be printed each year—but if these limits are exceeded, all bets are off (as they were during 2008’s global financial crisis).

Read: How Inflation Is Affecting Gen X


Should people be concerned about inflation?

Shopping trolley and piggy bank balancing on a seesawBecause prices have been rising on everything from food to heavy manufacturing equipment in recent months, putting pressure on consumers and investors alike, it helps to stay aware of what is going on from an economic standpoint.

Investors who do not have a comprehensive financial plan are not as equipped financially as someone who does. And because many global events have kicked inflation into high gear, you must know where to cut back in spending and how to choose safer investments to help protect your wealth. Working with a financial advisor in Tennessee at Sapiat Asset Management can help protect your savings and potentially help to grow it. 

Because inflation is a decrease in value for currency or assets (such as stocks), it will help to explore alternative investments such as crypto as an inflation hedge

You must always consider inflation when investing.

Inflation is a persistent problem for investors and consumers alike, you must learn how to mitigate the effects of inflation. While the Federal Reserve is still trying to get a handle on it, the crypto market is being explored by investors of all ages. 

The best way to protect yourself from inflation is by investing in assets that tend not to lose value as quickly when prices rise. While some investments are better at protecting against inflation than others, all of them face risk if their prices go down too much relative to other assets.


Digital assets can be the answer to currency problems 

Digital assets are a growing answer to currency problems stemming from hyperinflation or devaluation of fiat currency and other currencies today. Cryptocurrency for example can be traded for goods, services, or even other digital assets and can be stored in a wallet on your phone or computer.

What are the benefits of investing in cryptocurrency?

Cryptocurrency is a digital asset that uses cryptography for security. Cryptography is the practice and study of techniques for secure communication in the presence of third parties called adversaries. Cryptocurrencies use timestamping to “prove” the validity of transactions added to their blockchain ledger without the need for a trusted third party.

There are many benefits to investing in cryptocurrency, so do your research when looking for the best crypto to invest in

Digital assets are not controlled by governments or banks.

Close up of hands by using mobile phone Scaning Bitcoin QR code for digital contact less payment after shopping using Bitcoin cryptocurrency - concept of technology, safety and privacyThe fact that cryptocurrencies are not regulated by any government means they are free to operate in a largely unregulated environment. However, governments all over the world have been closely looking at cryptocurrencies and digital assets in general to determine their place in society. When more countries start accepting them as legal tender, then it’s likely that their value will rise substantially because of increased adoption.

Inflation is another reason why people invest in digital assets like cryptocurrency: these assets aren’t subject to inflation because there is only so much supply available—they can’t get printed like paper money. In addition, if you hold onto your “coins” long enough they may even increase in value due to scarcity.

Cryptocurrencies should not be subject to inflation.

Crypto is designed to have a fixed supply that grows at a fixed rate. This means that they should not be subject to inflation at all—in fact, some economists believe they may actually be deflationary.

So, if you’re looking for an investment that should hold its value against inflation over time then digital assets like cryptocurrency could be right for you. Of course, you’ll want to consider other factors before making any investment decisions such as liquidity (how easily can I sell my coins?), and volatility (will my coin price fluctuate), etc. 


Next Step

We don’t condone investing in something unless you have done your due diligence or work with an experienced financial advisor who specializes in what you are seeking. That said, give us a call to discuss the reasons why digital assets like cryptocurrency are worth considering as part of an inflation-proof portfolio.


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Sapiat Asset Management is a Fee-Only, Independent, Registered Investment Advisor (RIA), specializing in goal-oriented financial planning and investment management for Gen X Individuals & Families, their Businesses, & the Trusts that benefit them and their heirs.

Steve Dick