Newcomers to cryptocurrency often wonder what the financial advantages are to owning cryptocurrencies like Bitcoin. Many people get carried away with the gains that they see in the current bull market and fail to see one of it’s biggest advantages; a hedge against government currency failure.
Venezuela
Venezuela used to be one of the most financially prosperous countries in South America… until the government hyperinflated their currency to pay for debts and entitlement programs. Not only did the currency become worthless but it also ruined the Venezuelan stock market and bonds market. Hyperinflation does not just kill currency. It kills everything that a currency depends on; including most businesses.
The Problem of Hyperinflation
There have only been a handful of assets in Venezuela that maintain any semblance of value; gold and cryptocurrency. Everything else has been destroyed by the Venezuelan government. Why do assets like gold and Bitcoin survive when everything else dies?
Stocks and bonds can’t survive hyperinflation. The businesses tied to the stocks need a stable and useful currency to function correctly. This means the business must:
A: Adopt a currency that is NOT the local currency. This may be against the country’s laws, be expensive to implement or just not practical.
B: Go out of business.
C: Do illegal activity to survive.
D: A little bit of everything.
Government bonds and corporate bonds also become worthless. The inflation rate exceeds the bonds interest rate by such a high level that bonds become worthless. Even when a corporation or government offers a bond at a higher interest rate than inflation investors stay away; everyone worries that inflation will continue to go out of control.
Crypto as Insurance Against Hyperinflation
Since cryptocurrency is not dependent on government currency to operate it is a natural hedge against hyperinflation and other forms of government failure. It has several advantages over gold because:
- It’s easily sent over the internet
- Capable of making international payments
- Does not weigh a lot like gold does
- Easy to transport
All of this means that cryptocurrency can easily pick up the slack if your government currency fails.
Want to buy some cryptocurrency to protect yourself against hyperinflation? Check out the OKEx exchange to easily purchase Bitcoin with your local currency like the Euro, Australian Dollars or Mexican Pesos.
Cryptocurrency: a Non-correlated Asset was originally published in OKEx Blog on Medium, where people are continuing the conversation by highlighting and responding to this story.
