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Bitcoin vs. Inflation: The Ultimate Guide

As people become interested in Bitcoin, the inflation question arises again. What is Bitcoin’s inflation rate? How does it compare to other currencies? This guide post will answer questions about Bitcoin and inflation.

Published: 2 November 2022, 11:30 am Updated: 02 Nov 2022, 10:21 am

Inflation is a decrease in the purchasing power of money – when prices rise, and each unit of currency buys fewer goods and services. Deflation, on the other hand, happens when prices fall and the purchasing power of money increases.

While these are the traditional definitions of inflation and deflation, they don’t apply to Bitcoin. That’s because Bitcoin is not subject to the whims of central banks and governments, unlike fiat currencies. So, while a country’s inflation rate might rise, the Bitcoin inflation rate could be going in the opposite direction.

What is Inflation?

Inflation is a sustained increase in the price of goods and services. The prices rise when more money is available in an economy than goods and services for sale. The currency loses purchasing power because there is too much money chasing too few goods. This situation reduces the value of a dollar so that it buys fewer things.

Inflation can happen for many reasons, but one key factor is a growing economy. As the economy expands, demand increases, and businesses raise prices to match this demand. It often occurs with rising wages due to supply and demand pressures on labor markets, particularly if unemployment rates are low. When fewer people work and produce goods than people who want to buy those goods, employers are forced to raise wages to entice people to work.

Another key cause of inflation is monetary policy. Central banks and governments can lower interest rates or increase the money supply (by simply printing more currency), which can cause a rise in prices. In addition, excessive government spending or high deficits due to insufficient tax revenue can contribute significantly to inflationary pressures.

How does inflation affect Bitcoin?

Bitcoin has rapidly spread as a way to hedge against…

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