People invest in cryptocurrency for different reasons. While some want to book profits, others see a quick way to grow their wealth. Still, there are others who see it as a store of value. But most of them would agree that cryptocurrency, especially Bitcoin, is a great hedge against inflation. That is when inflation rises, the value of money depreciates. To beat this recurring problem, many people invest in assets that are almost certain to rise in value at a rate more than inflation. This strategy ensures that the net value of their investment remains positive despite inflation eating into the value of their savings.
The rapid growth of Bitcoin over the past year has made investors see in it the potential to beat inflation. So, instead of putting their money into gold or realty, many of them are entering the cryptocurrency industry.
According to a Bloomberg report, JPMorgan's analysts wrote that the recent rally of Bitcoin was driven mainly by the perception that it was a better inflation hedge than gold. Investors around the world are worried about increasing rates of price rises and this has revived their interest in inflation hedges, including Bitcoin.
Bitcoin was trading at around Rs 47 lakhs on October 22, at the time of writing. It has risen about 125 percent so far this year. On the other hand, gold has fallen 8 percent year-to-date. This also proves that people are seeing Bitcoin as a better investment option than the yellow metal. What also works in favour of Bitcoin is that it is limited in supply, partially like gold.
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In India, consumer price inflation has remained higher than the Reserve Bank of India's target of 4 percent for a major part of last year. With global crude oil prices on the rise, many people are concerned that inflation is likely to increase further in the near term.