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This is especially important for people native to countries like Turkey, Argentina, Ethiopia, Zimbabwe, or Lebanon, where hyperinflation has deemed their fiat currencies a risky medium of exchange. Typically used to describe a monthly inflation rate exceeding 50%, hyperinflation refers to a situation when there is an expeditious and uncontrollable price increase of important goods and services in an economy.
As hyperinflation continues to erode the value of their currencies, people in such countries could switch over to stablecoins such as Tether (), USD Coin () or BINANCE USD (BUSD) in order to protect their capital from rapid wealth erosion.
By holding their savings in the form of stablecoins, they could preserve capital during inflation using cryptocurrencies and also benefit from the appreciation in the underlying peg to even increase the value of their savings.
Since this is sacrosanct even in a high inflation and interest rate regime, hyperinflation has minimal effect on cryptocurrencies like stablecoins. Thus, for investors in economies plagued by high inflation, cryptocurrencies can act as an optimal investment, too.
Is it a good idea to put your money in crypto during inflation?
While there have been cases of cryptocurrencies failing miserably because of security concerns, fraud, or a combination of both, there are many cryptocurrencies that have stood the test of time and continue to attract hordes of investors.
Related: How can third-world countries counter inflation using Bitcoin?
Apart from BTC and ETH, altcoins such as Avalanche (AVAX) and Polygon (MATIC), among others, could be a long-term hedge against inflation. Investors could allocate some capital toward these cryptocurrencies to potentially reap profits in the long term while also using products such as staking pools to earn additional income from these investments.
Going by historic data, it can also be a profitable strategy to prudently invest in cryptocurrencies that are currently trading near important support levels and simply hold them as a hedge against inflation.
On the other hand, stablecoins, along with other cryptocurrencies, can be held in a digital or hardware wallet just like fiat currency in a traditional bank while still helping investors to protect their wealth from eroding in a hyperinflationary environment.
In other words, stablecoins are safe from inflation as compared to currencies such as the Turkish lira, especially when they are pegged against the USD. That being said, there are a few stablecoins that have been notorious for trading below their peg, and investors would do well to maintain a cautious approach when trading or investing in them.
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