How to Use Bitcoin and Gold to Fight Inflation

Inflation is the silent killer — or at least it used to be. Inflation has come to the forefront of the public eye in the post-COVID era. Noticeable decreases in purchasing power, spikes in the cost of goods and services, and the near monthly money printing announcements from central banks are all too common.

Recent data shows that the inflation rate in the US has gone up from 3.2% in July 2022 to 3.7% in August 2023. The United Kingdom is grappling with a 6.7% inflation rate, and Germany is at 4.5%. Hyperinflation is also taking hold in certain nations, such as Turkey (61.5%) and Argentina (124%).

On a global scale, the International Monetary Fund (IMF) projected an elevated global average inflation rate of 6.6% for 2023.​

Finding ways to protect your money against inflation has become paramount. In this article, you’ll discover how gold, the traditional safeguard, and bitcoin (BTC), a modern-day digital asset, combine as the ultimate shield against inflation.

The Golden Inflation Hedge

When people look for ways to fight inflation, gold is often first to mind. Gold’s history spans centuries, with its intrinsic value, scarcity, and detachment from governmental monetary policies making it one of the best assets for hedging against inflation.

Pros of Gold

Historical Performance

Gold’s reputation as a safeguard against inflation is not a recent discovery, having taken shape over thousands of years. During the 1920s, when Germany faced a hyperinflation crisis, gold outperformed all other asset classes and was thus highly sought after. During the 1970s, a period marked by soaring inflation, gold prices surged in the United States, providing investors with a valuable hedge.

Long-Term Resilience

Gold’s long-term resilience is proven through its stable performance even when inflation is running amok. According to a study by the World Gold Council, gold has increased in value by an average of 15% per year when inflation is higher than 3%, and 6% when inflation is below 3%.

Scarcity and Stability

Unlike fiat money, you can’t suddenly add or remove gold from existence. This is fundamental to its role as an inflation hedge. Its supply is not easily manipulated, and its value retention, even in turbulent economic conditions, makes it a dependable asset for wealth preservation.

Cons of Gold

Short-term Performance

While gold shines as a long-term hedge, its short-term performance against inflation is less compelling. Studies reveal that its effectiveness as an inflation hedge is more pronounced over longer time periods, stretching up to a decade or more. Therefore, many people outside the US prefer to simply use the US dollar to hedge against local short-term inflation spikes. 

Liquidity and Storage Challenges

Ownership of physical gold comes with its share of challenges. The burdens of storage, security, and liquidity can deter modern-day investors.  It is not an easy or convenient investment compared to other assets, and with custody comes extra costs. This is where crypto comes in, tokenizing gold into a digital asset.

PAX Gold (PAXG)

Transitioning from the traditional to the digital realm, PAX Gold (PAXG) is crypto’s solution to gold investment. 

PAXG is a stablecoin backed by physical gold. Each PAXG token is equivalent to one troy ounce of high-quality gold, securely stored in the London Bullion Market Association (LBMA) vaults.

By removing the complexity and costs associated with physical gold ownership, PAXG lowers the entry barrier to gold investment, enabling more investors to leverage gold's inflation-hedging abilities without the traditional challenges of storage and transportation​.

Bitcoin: The “Digital Gold”

Another “crypto” option to hedge against inflation is the tried and tested bitcoin (BTC). Dubbed 'Digital Gold,' Bitcoin shares many characteristics with gold, while still offering unique features.

Pros of Bitcoin

Scarcity and Fixed Supply

One of Bitcoin’s hallmark features is its fixed maximum supply of 21 million coins. This scarcity is similar to the limited nature of gold. Unlike fiat currencies, which can be issued without a cap by central banks, the supply of Bitcoin is algorithmically controlled, making it immune to inflationary pressures created by excessive money printing.

Decentralization

Bitcoin operates on a decentralized network, free from governmental or institutional control. This decentralization insulates Bitcoin from inflationary policies that often plague traditional fiat currencies.

Historical Performance

Between January 2010 and March 2021, BTC, alongside gold, oil, and stocks, outperformed inflation in countries with relevant crypto adoption rates.

Digital Portability and Accessibility

Bitcoin is completely digital. Unlike physical gold, BTC can be sent or received anywhere, anytime, with minimal fees, making it a modern, convenient asset for global investors.

Cons of Bitcoin

Volatility

Bitcoin's price volatility is a major concern for investors seeking a stable store of value. Unlike gold, which has a long history of relatively stable prices, bitcoin's price can spike or plummet within short time frames. This high volatility often deters risk-averse investors and can undermine bitcoin's reliability as a stable inflation hedge.

Lack of Historical Longevity

Unlike gold, which has been valued by civilizations for thousands of years, bitcoin has existed for just over a decade.  Whilst an extremely fruitful decade for bitcoin, its relatively short history poses uncertainties to its long-term performance and acceptance.

Regulatory Uncertainties

The regulatory landscape surrounding BTC is still evolving, with differing legal and regulatory frameworks across countries. These regulatory uncertainties can impact BTC's adoption, usability, and effectiveness as an inflation hedge.

The Inflation Fighters Bundle: A Fortress Against Inflation

So, what is the solution? Gold or bitcoin? Thanks to PAXG bringing gold to the crypto world, it is possible to hold both. 

Bitcoin's potential for high returns and PAXG's stability and reliability offer a balanced and diversified approach to safeguarding your purchasing power. 

By purchasing Bake’s Inflation Fighters Smart Bundle, you can balance the strengths of one asset to counteract weakness in the other, creating a resilient fortress against the effects of inflation. 

DISCLAIMER: Please note that the information on this blog and in any articles posted on this blog is for general information only and should not be relied upon as financial advice. Cake Pte. Ltd., Bake, UAB, and its affiliates (the “Cake Group”) are not licensed financial advisers. You may wish to approach your own independent financial advisor before making any decision to buy, sell or hold any product and/or digital assets mentioned in this blog.

Any views, opinions, references, assertions of fact and/or other statements are not necessarily the views held by the Cake Group. The Cake Group disclaims any liability whatsoever that may arise out of or in connection with such statements. Always do your own research before investing in any financial assets and consult a qualified financial advisor if necessary.