The Magazine for Asian Investors
As you should have noticed by now, inflation has become part of our daily lives. When driving to the gas station or going to the supermarket, prices for essentials like gasoline (+42%) or beef (+15%) have skyrocketed.
If you are not worried about inflation, you should inform yourself as soon as possible, because the purchasing power is decreasing. The reason for this is the money printers who keep throwing more and more stimulus into the market and let inflation go from initially transitory to longer than expected.
The Fed has probably painted itself into a corner by now. On the one hand, they want to reduce the inflation rate to the target level; on the other hand, they do not want to strain the fragile markets and the high national debt with high-interest rates. The dilemma is already underway because every time the Fed talks about raising interest rates, the markets fall, but the Fed must probably address this in the near future because inflation in the last month had risen by 7%. That was the highest increase since 1982.
On the other hand, the ECB does not give much hope for insight and continues to drive with 0.00% interest rates, although the inflation rate of 5.1% has reached the highest level since the recording of the data. Only the Bank of England gives some hope with already two slight interest rate increases to 0.5%.
All this speaks for even more inflation
Why are prices rising? Price inflation is a result of monetary inflation where the inflation term actually comes from. When a higher money supply chases the same number of goods and services, prices rise. This can also happen when there is a shortage of goods. At the moment we see on a global level just these two phenomena. The money supply is increasing and in many countries, there is a shortage of goods. The U.S. is showing more and more pictures of empty supermarket shelves, and the Chinese government just recently told its citizens to stock up on enough food because there could be a shortage.
What can you protect yourself with?
Gold has been an object of value for thousands of years. It has always been the synonym for real money. Since the U.S. dollar was taken off the gold standard, the U.S. dollar has become debt. For example, $1 of 1913 is the equivalent of nearly $28 today. This represents a 2,700% increase in price. When the dollar was taken off the gold standard in 1971, the price of gold was $35. The price of gold today is just over $1800.
The prices of commodities such as metals, energy or food are rising as inflation increases. We have already seen since the beginning of the COVID 19 pandemic that the prices for almost all commodities have increased. In addition, there is a shortage of raw materials. For example, the price of lumber rose sharply last year, and the latest example is energy commodities as thermal coal or natural gas.
Real estate and land are rising in almost all regions of the world. This is due to inflation because an ever increasing amount of money is needed to buy the same piece of land or property. If one were to measure the price of real estate not in fiat currencies but in gold or silver, for example, one would see that real estate prices have fallen.
We think that we should make a distinction here and talk only about Bitcoin. Bitcoin in particular has been able to increase its price and beat inflation every year except for one. However, the above mentioned hedges have shown their proof in times of hyperinflation and currency death. Bitcoin has not gone through that yet. Due to its young age and the available data, we cannot really say yet if Bitcoin is an inflation hedge, but the unique price increase of Bitcoin since its introduction has absolutely shown its potential to be an inflation hedge. Here we will see in the coming crisis that is already emerging to what extent Bitcoin can be a hedge. We are very confident in this regard.