Bitcoin has accomplished more than 13% in the past month, and inflationary pressure has caused a booming surge within this demand. According to data from Chainalysis, a blockchain data platform, in economies that are presently witnessing runaway inflation like Russia, Turkey, Argentina, and Brazil, cryptocurrency adoption has vastly increased.
Bitcoin demand surges amidst rising inflation
The Eurozone, United States of America, and United Kingdom, amongst several other economies, are witnessing record levels of enhanced inflation influenced by several factors, including the humongous quantitative easing programs they have been operating since the commencement COVID19 pandemic.
International fiscal market investors are famously known for reacting to oil rates and central bank policies trends. This week, US crude oil has assembled more than 23% on apprehensions of supply-side pressure resultant from the Russia-Ukraine war and the corresponding western sanctions. Investors are estimated to react to this surge. They could respond by evading their positions within safe-haven assets like Bitcoin and Gold or purchasing equities profiting from the oil rally.
Last week, Russia’s raid in Ukraine led the Russian Rouble to a 30% plunge against the greenback dollar. In addition, with the January inflation reported at 9.5%, the Central Bank of Russia trekked the key lending rate from 9.5% to 20% to switch the runaway inflation. As a result, according to blockchain news site – CoinDesk, Bitcoin trading activity surged to a 9-month high in Russia.
The international oil price rally commenced in April 2020 and is still prevailing. In 2021, Brent oil and US crude oil rallied more than 50%. This has augmented in 2022, with both markets surging a further 47% year-to-date. Analysts expect the higher oil rates to facilitate a hike in product rates, resulting in higher inflation internationally.
Despite the initiatives of major central banks to slam brakes on quantitative easing programs and increase interest rates, cash savings have already been affected by the surging rate of inflation, and savers are seeking alternative mediums of loading their wealth. Based on gold price performance since the commencement of 2022, analysts estimate that gold has been winning the inflation windbreak war against Bitcoin so far.
However, due to harsh western sanctions and censorship measures being executed to restrict transactions with Russians and Ukrainians, the retail industry is finding it easier to utilise Bitcoin compared to fiat currencies and gold. Furthermore, this enhanced Bitcoin utility has allowed the Ukrainian government to fundraise its military budget by using Bitcoin and other cryptocurrency donations.
With Nigeria’s inflation rate established at 15.6% in January 2022, traders seeking to make global transmittals have switched to Bitcoin since Naira’s exchange rate with the greenback is constantly emerging as expensive. According to a recent article by Reuters, Nigerian traders can evade the effects of currency depreciation by utilising Bitcoin to accumulate their worth.
Ukraine and Russia are amongst the top five sunflower, wheat, and corn exporters across the globe. These products are vastly exported to the Middle East and North Africa. An interruption in their supply could result in higher food rates, food shortage, and ultimately, inflation.
To safeguard household budgets from the consequences of this inflation, there is a robust likelihood that retail traders would stockpile Bitcoins as it has been established to be a dependable store of worth over the past ten years, despite being humongous in volatility. According to Blockchain news site, CoinDesk, the inculcation of Bitcoin in Middle East nations witnessing high inflation and volatile autocracies has already vastly augmented.
It is sensible to highlight that Bitcoin was trading as an alternative asset resulting positive correlation with equities like American technology stocks before the Russian annexation of Ukraine. Bitcoin’s utilisation as an inflation windbreaker is yet to progress as its instability corrodes value consistency. According to Robert Breedlove, founder and CEO of Parallax Digital, Bitcoin could ultimately emerge as the de facto inflation windbreaker with broader adoption.