In several of my recent articles here, I have discussed the big surge in government debt and a surge in overall debt in global economies.
As debt continues to grow and as governments print money, inflation is a threat in the coming years.
Billionaire hedge fund manager Stanley Druckenmiller has already warned that inflation could hit 10% in the coming years.
Another Billionaire hedge fund manager Paul Tudor Jones is bullish on Bitcoin and he opines that Bitcoin is the best hedge against inflation.
Paul Tudor Jones also believes that the Bitcoin’s rally is just in the “first inning.” In other words, the best part of the rally for the cryptocurrency is yet to come.
I am in agreement with this view and I believe that Bitcoin can rocket past $20,000 in the coming year.
However, let’s discuss the view that the cryptocurrency is the “best inflation hedge.”
I would like to agree on the view that Bitcoin is a good inflation hedge.
How?
Well, Bitcoin has a limited supply of 21 million. At least for now, the supply is limited to this number.
What about the Dollar?
There is no limit at all to the amount of dollar that the U.S. government can print. As a matter of fact, there is no limit to the amount of any currency.
Therefore, Bitcoin (with limited supply) is priced against the dollar (with unlimited supply). As money printing continues, Bitcoin will gain in value against the dollar. Or, the dollar will continue to lose value against Bitcoin.
This is a matter of simple economics.
Another good example is gold. There is a limit to the amount of gold reserves and the amount of gold that can be mined. Again, there is no limit to dollar printing. Therefore, gold will continue to appreciate against the dollar.
I believe that gold, silver, cryptocurrencies are all good hedges against inflation. Investors need to have these assets in the core long-term portfolio.
Let me end with a simple example –
A small economy has 5 individuals and each person has $100 in his pocket. A trader has 5 burgers and he is aware of the money each individual has. The trader prices the burger at $20.
Suddenly, Mr. Central Bank arrives and puts $10,000 in the pocket of each individual. The trader now knows that each person has $10,100 in his pocket.
What do you think he would do with the price of the same five burgers?
The trader will possibly increase the price to $100 or $200.
So, it’s the dollar that depreciates as the number of dollars in the system increases (against products or assets that have a limited supply).