In addition to the price of daily necessities for the general public, housing costs are also skyrocketing due to the rise in asset prices. US policy makers say, “It’s temporary, it will be stable from the second half of next year,” but few believe it at face value.
Because when you say inflation is coming, it’s most likely lip service, worried about the asset market becoming unstable and inflation going up.
# The silent thief
The central bank’s rush to raise interest rates, fearing the widening gap between the rich and the poor due to rising inflation and asset prices, and the expansion of a bubble, is becoming a reality.
Prices lower the value of your money. If you had to buy an apple for 200 won that you could have bought for 100 won, the value of money has plummeted in half. If you hold cash, you sit still and your fortune drops in half.
Data on the trend of domestic consumer price inflation over the past four months. Hankook Ilbo
So, what does inflation have to do with Bitcoin? If it is easy, it is easy; if it is difficult, it is difficult. Let’s start with the conclusion and explain why. Conclusion: “Inflation creates a favorable investment environment for Bitcoin. Bitcoin price is likely to rise.”
# Inflation and deflationary currencies
Let’s define Bitcoin first. The advantage of Bitcoin, emphasized by the Bitcoin community, is that it is hard money (hard money) with a limited issuance. Bitcoin can be defined as a ‘deflation currency’ whose issuance is decreasing.
Bitcoin is already a currency designed with mathematical coding. When bitcoins were first mined (January 2009), they paid 50 bitcoins every 10 minutes for a block to form. This equates to 50 bitcoins in 10 minutes. It has a half-life that halves every 4 years. It decreased to 25 in 2013, 12.5 in 2017, and 6.25 in 2021. As such, it halves every four years, and by 2140, the 21 millionth bitcoin is mined and additional bitcoin issuance stops.
This promise must be kept. The promises of politicians can be air-checked, but Bitcoin is made with math and programs, not people. There will be an opportunity to review why mathematical formulas are not broken.
Why is Bitcoin, a deflationary currency, good for investing in inflation? Do you accept the definition of deflationary money? Then, investing in Bitcoin becomes a natural thing.
This is because the definition itself means that Bitcoin is an alternative to the existing currency and the financial system based on it. What is an alternative? It means there is a problem with the old system.
# The biggest weakness of the existing monetary system is inflation
The existing currency is called Fiat Money (fiat currency). It is an inflationary currency with increasing issuance.
Central banks in most countries, including the United States, have inflation targets. They consider an inflation rate of around 2% to be good for the economy and are implementing monetary policy to achieve this. The basic idea is to expand the currency on the premise that inflation will rise.
Take a look at the picture below.
Fed (FED) balance. Fed Homepage
The Fed’s balance sheet. The Fed’s assets are mainly U.S. Treasury bonds. There is also gold. Last year, it also bought corporate bonds to help businesses in the midst of a pandemic. With what money did you buy this property? Yes. It was bought in dollars printed by the central bank.
The central bank releases money in the market by printing money and buying government bonds. It is important to shoot here. It is literally money printing. The government has the right to stamp money by law. There is no intrinsic value Trust and belief in the government supports the money.
That’s why it’s called ‘Fiat Money’. It is paper money, not physical currency such as gold coins of the past.
# If you print money, the value of money decreases
When you print a lot of money, inflation occurs. As the value of money goes down, prices go up. When you wake up, the price of apples doubles or triples. There is talk of a new normal era where prices do not rise, but inflation has been confirmed as a global phenomenon.
Former US Treasury Secretary Larry Summers said that “inflation is out of government control.” When current Treasury Secretary Janet Yellen pointed out that she was “wrong”, Summers tweeted a lengthy rebuttal. He pointed out that the government’s judgment was consistently wrong, saying that inflation was never more dangerous than it is now in his 40-year career.
A tweet from former Treasury Secretary Larry Summers criticizing the US inflation policy.
In February, the U.S. administration predicted a 2% inflation this year while drawing up its budget, but it was already wrong. did.
# Inflation threatens the regime and community
Inflation makes life difficult for people, which jeopardizes the security of the regime and the existence of the community. Income is obvious, but as prices rise, living standards fall. I felt it while buying kimbap recently. The basic price of 2,000 won has now risen to 2,500 won and 3,000 won.
There are things that are essential for life, but in Korea, they cannot be caught on the water. That’s the house price. Although some monthly rent is collected, the jeonse and the house price itself are not included in the price of goods. Soaring real estate prices threaten people’s hopes and survival itself. In particular, the middle class and low-income class find life itself difficult and threatened.
The government is forced to make a choice. In order to catch inflation, interest rates must be raised and the money that has been released in the market must be recovered.
A rise in interest rates can lead to a crisis in the government by lowering asset prices. Inflation increases further. The anger of the people, whose survival is threatened, brings not only a crisis of the regime, but also a crisis of the nation and a crisis of the community. It was good when we had a party with a lot of money. They lived on debt, and consumption was plentiful as asset prices rose.
But after the feast, washing dishes awaits. Washing the dishes is difficult. The bigger the feast, the more things to clean up.
# Where is your safe haven?
Ultimately, those who own assets find a way to keep them safe. Dollars are often preferred. Assets in dollars are also an alternative. The reason the US prefers the dollar even though it has loosened the dollar is because of its comparative advantage with other currencies.
Trade is done in dollars and backed by the military and economic power of the world’s most powerful power, the United States. Dollars are still the best money printed. Although the euro and the yuan are overtaking their positions, they are still in a state of disrepair.
Still, the recent dollar spread is too large. More and more people are suspicious. If you look at the Fed’s balance sheet, you can see ‘taken and filmed’.
During the Joseon Dynasty, there was a Dangbaekjeon. When Daewongun ran out of finances while rebuilding Gyeongbokgung Palace, he made and distributed Dangbaekjeon, which only increased the value to 100 while taking a Sangpyeong notification including the same metal content as a one-jeon. There has been a huge price increase.
Since 1971, when Nixon stopped converting gold to gold, the issuance of dollars has increased 100 times. It’s the same thing as a fight. Dangbaekjeon is the origin of the phrase “there is no penny”, which still speaks of valueless money in Korean. There are a lot of people who are worried that the dollar might become a ‘dumpling’.
Many senators, including U.S. Senator Loomis, are also arguing that the dollar can depreciate and buy bitcoin, and that bitcoin can become a reserve currency instead of the dollar.
# Alternative investment… Bitcoin is a deflationary currency
We can’t help but look at Bitcoin as a deflationary currency. As mentioned above, Bitcoin now forms one block every 10 minutes, and Bitcoin is mined at 6.25 BTC each time.
Some people say it has no intrinsic value, but that’s wrong. Millions of computers around the world produce 6.25 in 10 minutes. The basic value of Bitcoin is the cost of production, such as the cost of equipment investment, the electricity cost for production, and the labor cost of people running the factory. It is also persuasive to argue that Bitcoin is scarce and has higher intrinsic value than 100 dollar bills, which can be printed indefinitely for only 200 won.
Renowned hedge fund manager Ray Dalio said “cash is garbage” when he saw money printing. In an inflationary phase, cash loses its value, so you shouldn’t own it. Assets such as stocks and real estate are also increasingly concerned about the bursting of the asset bubble formed by monetary expansion.
# Bitcoin strong in crisis
Bitcoin survived the Chinese attack. The US said it would not ban it like China did. Allows futures-based bitcoin ETFs. This means that Bitcoin has survived and has begun to enter the system.
Even if you are not an IT expert or early adopter, it has become easier to invest in Bitcoin as a means of investment and as a means of avoiding risk. Bitcoin has begun to establish itself as an alternative that people are looking for amidst the collapse of the asset bubble and the depreciation of currency due to inflation.
Conclusion: “Inflation creates a favorable investment environment for Bitcoin investment. Bitcoin price is likely to rise.”
Finally, we introduce a tweet from Bitcoin Beach in El Salvador that adopted Bitcoin as a legal currency.
“Thankfully, the price of oil continues to fall. Only 100,000 satoshis (Sats) filled the tank today. It took 150,000 satoshis a month ago to fill the tank and 400,000 satoshis a year ago. The cost of living is getting cheaper.”
Satoshi is the smallest unit that divides Bitcoin. 1 Bitcoin is 100 million Satoshi. This is a tweet that shows the meaning of the deflationary currency.
*This article The Hankook Ilbo’s October 30th ‘Bitcoin Before Ride’ columnthat has been published in
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